James T. McHugh (Eds.) - Toward A North American Legal System (2012, Palgrave Macmillan US)

Toward a North American Legal
System
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Toward a North American Legal
System
Edited by James T. McHugh

toward a north american legal system
Copyright © James T. McHugh, 2012.
Softcover reprint of the hardcover 1st edition 2012 978-1-137-26949-2
All rights reserved.
First published in 2012 by

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DOI 10.1057/9781137269508
Library of Congress Cataloging-in-Publication Data
Toward a North American legal system / edited by James T. McHugh.

p. cm.
ISBN 978-1-349-44397-0
1. Law—North America—International unification.
2. Law—North America. I. McHugh, James T., 1961–
KDZ88.T69 2012
349.7—dc23 2012017705
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Contents
List of Tables vii
Preface: Contemplating a Continental Legal Foundation ix

Robert A. Pastor
Introduction 1
James T. McHugh
1 Assessing the Prospects of North American Legal
Harmonization 7
Matthew T. Simpson
2 How to Think About Law in North America 39
H. Patrick Glenn
3 The Constitutional Presence within North America 57
James T. McHugh
4 Legal Integration of NAFTA through Supranational
Adjudication 79
Jay Lawrence Westbrook
5 NAFTA Chapter 11 and the Harmonization of Domestic
Practices 89
Susan L. Karamanian
6 The Strict Subsidiarity Principle under NAFTA Law and
Policy: Implications for North American Tax Policy 125
Arthur J. Cockfield
7 Single Market Governance: Lessons from the European
Experience 149
Michelle Egan
vi ● Contents
8 Conclusion: The NAFTA Region—a View from the Current

Mexican Agenda 175
José Antonio Caballero Juárez
Contributors 183
Bibliography 187
Index 207
List of Tables
7.1 Combines the free movements/free establishment (vertical

axis) and the four market failures (in columns 2–5), which
would have to be addressed for the IM to function properly
(This table is adapted from Pelkmans (2006).) 152
7.2 EU policy instruments 155
7.3 Measures to improve implementation and compliance 162
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Preface: Contemplating a Continental
Legal Foundation
Robert A. Pastor
Until the last decade of the twentieth century, “North America” was little
more than a geographical expression, and there was even a question as to
which countries fit within the definition. The decision by Canada, Mexico,
and the United States to sign the North American Free Trade Agreement
(NAFTA) in 1992 defined the region’s boundaries and lifted the “North
America idea” beyond geography and economics.
From NAFTA’s inception to the present, virtually all tariff and invest-
ment barriers were gradually eliminated, and a continental market—rivaling
Europe’s or East Asia’s—was created. The more visionary viewed NAFTA as a
first draft of a continental constitution; the more fearful viewed it as a slippery
slope toward the destruction of state sovereignty.
NAFTA gave the region an economic boost. From 1994 to the year 2001,
North America’s share of the world’s gross product grew from 30 to 36 per-
cent, while Europe’s remained constant at 26 percent. Trade among the three
countries tripled and foreign investment quintupled. Intra-regional exports
as a percentage of total exports in North America climbed from 33 percent
in 1980 to 56 percent in 2000, almost reaching the level of integration in
Europe after five decades.1 National firms became North American. At the
same time that businesses forged continental ties, more and more people
of all three countries toured and immigrated to their neighbors. Americans
traveled more to their neighbors than to any other countries, and the same
applied for Mexicans and Canadians. Perhaps, the most profound transforma-
tion, however, stemmed from those who moved permanently. Since 1970, but
intensifying since NAFTA, the number of Mexican-born immigrants living in
the United States increased by a factor of 17—to 12.7 million—representing
about one-third of all immigrants.2 Societies became interwoven.
Integration proceeded at such a fast pace that the governments could not
keep up, and that is the principal continental dilemma today: the continental
x ● Preface
market has enlarged, but there is no governance. Without institutions or

agreed procedures, problems become crises, and that is what happened with
the peso devaluation of 1994, the assault of 9/11 in 2001, and the finan-
cial meltdown of 2008, the latter of which was due to the expansion of the
securities market without a similar expansion of regulations. Regardless of
the origin, each crisis eventually harmed all three countries. Just as serious,
though less dramatic, the failure to establish institutions of cooperation has
eroded the platform of integration, causing a decline in the growth of trade
and reduced competitiveness.
North America faces a quiet crisis. If it were loud, the leaders would
act, but since it cannot be seen in the headlines of our papers, and since
each country is preoccupied by a formidable agenda, the issues of North
America—whether competitiveness, ineffectual and costly security and cus-
toms inspections at the borders, lack of infrastructure investment, or low-
profile protectionism—are ignored. Over time, however, the capacity of the
three countries to compete against Asia and Europe has been diminished.
Moreover, the lack of leadership means that the opportunities of a deepening
market and of new relationships with our neighbors are not grasped.
Imagine for a moment if the three governments were to formulate North
American plans for transportation and infrastructure, the environment, edu-
cation, trade, regulation, labor conditions, and health services. Progress on
any of these plans would propel North America to the front of the twenty-
first century. This will not happen without new institutions to propose the
plans and political will to implement them. As the region integrates, there
will inevitably be a host of legal and other problems. As business and society
expand across borders, legal disputes are inevitable, and a smooth system is
needed to expedite resolution of such disputes. To keep the North American
experiment alive will require policy coordination and, eventually, a more
effective way to harmonize or integrate three distinct systems.
The purpose of this volume is to encourage scholars and policy-makers
to think imaginatively about ways to integrate or harmonize the three legal
systems. There is considerable precedent. NAFTA itself has multiple dispute
settlement provisions in which lawyers from all three countries use a unified
set of legal procedures and appeal to an international panel. Other dispute
mechanisms or legal procedures govern the range of trade, investment, and
transnational disputes, including drug-trafficking.
There were many who believed that an integrated legal system was impos-
sible for two reasons. First, Mexico has a civil code, and Canada and the
United States have a common law. Second, federalism was strongly rooted
in both the Canadian and U.S. legal systems, making it difficult for the two
countries to have a national agreement let alone an international one. Mexico
Preface ● xi
sometimes used its different legal system as a barrier to prevent U.S. influ-
ence, and U.S. administrations sometimes used the federalist system to avoid
international obligations. But NAFTA and other decisions have eroded both
impediments.
For example, Mexico long refused any forms of extradition as a violation
of its sovereignty, but in the past decade, Mexico changed its policy and began
to send hardened criminals to the United States because it understood that
a strict definition of sovereignty would reduce its autonomy and capacity
to fight the drug cartels. Pragmatism replaced ideology, and now, all three
governments are working very closely together on a wide range of judicial
issues. Mexico actually is changing its legal system, adopting an adversarial
process with juries and the opportunity to confront accusers in court. It is
considering abandoning the delaying tactic known as the amparo. As Mexico
makes those changes, the possibility of further harmonization increases.
As the volume of trade testifies, a certain amount of harmonization is
occurring as a result of technology, professional mobility, and increased
investment. It is also clear that there are many different paths to harmo-
nization and cooperation. At the most basic level, legal harmonization could
proceed through decree or mutual recognition. At a second level, the drive to
improve competitiveness might compel different subnational or national enti-
ties to propose a convergence of procedures. In addition, lawyers, businesses,
or governments could proceed by focusing on individual sectors, particularly
those most in need of efficiency. Following areas are judged by legal experts to
be of the highest potential: bankruptcy law, intellectual property and patents,
and criminal law as it applies to major drug-trafficking, money-laundering,
and terrorism.
Already, the United States and Canada are working closely with Mexico
on drug-trafficking-related issues in the different judicial systems. When a
suspect is arraigned, both governments consider extradition or, simply, how
to make the best case. They cooperate in compiling evidence and informing
counsel before and during the trials. This volume offers a long menu of ideas
on how to address the divergent legal systems in a manner that would serve
all three nations. The conclusion is that we have begun to open our minds
to new opportunities, but we have barely begun to establish firm bonds for
legal cooperation among the three countries. We hope that this will be just
the first of a series of books on North America’s potential.
I have been researching, writing, and trying to influence policy in the
three countries on North America since 1978, when as the director of Latin
American Affairs on the National Security Council, I held conversations with
Mexican officials on these and other issues. A decade later, I raised the ideas
of free trade in North America with Mexico’s newly elected president, Carlos
xii ● Preface
Salinas, who had been my classmate in graduate school at Harvard. It was

ultimately his initiative in 1990 for NAFTA that began to give substance to
the North American idea. When I moved to American University in 2002,
I established a Center for North American Studies to teach courses, influence
public policy, and coordinate research on the subject.
Despite the emergence of North America as a formidable geo-political
entity, our understanding of this largest free trade area in the world in terms
of its economy and territory is inadequate, and the differences that continue
to separate the countries often seem more formidable than the shared inter-
ests. That is why we are launching this series and why this book on North
American law is an appropriate place to start. In February 2007, the Cen-
ter for North American Studies convoked a conference led by Dr. James
T. McHugh, then associate director of the center, on the questions whether a
North American legal system was possible or desirable. The product of that
conference is this book. I want to congratulate Dr. McHugh for organizing
the conference and editing the book.
Many had hoped that deeper integration among the three countries would
lead to trilateral approaches and institutions, but this has not occurred.
Some believe that this is due to “September 11th” and Washington’s national
security response; others attribute it to historical inertia and the lack of
leadership. Whatever the reason, the potential trinational relationship has
not developed in a way that would have permitted the region’s economy to
have grown faster than that of Asia. Most of the relationships remain dual-
bilateral–U.S.-Canada and U.S.-Mexico. We hope this series will help build
the consciousness and develop the proposals that will allow all three countries
to fulfill the promise of North America.
Notes
1. For the data and their development, see Robert A. Pastor, The North American
Idea: A Vision of a Continental Future (New York: Oxford University Press, 2011).
2. Pew Hispanic Center, Mexican Immigrants in the United States, 2008 (Washington,
D.C.: Pew Center, 2009).
Introduction
James T. McHugh
T
he adoption of the North American Free Trade Agreement (NAFTA)
in 1994 advanced the cause of greater continental cooperation in
trade and commerce. It also raised the possibility of even greater
cooperation among the three principal countries of the North American con-
tinent: Canada, Mexico, and the United States. Indeed, since the adoption
of NAFTA, indications of greater convergence among the people of these
three countries have grown, including in terms of values, goals, and expec-
tations. This process is not heading in the same direction as the European
Union nor should its institutions seek to emulate that grand and decades-
long supranational development. However, the deepening of North American
cooperation does offer the prospect of institutional features that would
facilitate this evolving relationship and converging identity and advance its
economic goals of increasing prosperity, security, and happiness for all of the
people of this continent and its countries. The relationship between law and
policy is, therefore, unavoidable.
One development that is crucial for this sort of success can be found in
the area of legal harmonization. Agreements that create some level of formal
cooperation among nations (including free trade zones) require equally for-
mal interaction among the member states in order to succeed. This theme has
been a subject of intensive study and application within Europe for more than
a half-century. Even without the sort of supranational agreements that have
been epitomized by the European Union, it has become apparent that any
relationship that crosses borders requires methods for overcoming inevitable
differences in legal language and practice. International law, by itself, sim-
ply does not provide the requisite guidance to achieve a level of cooperation
that is represented by close regional associations. Finding common ground
in relation to domestic institutions and conduct in the law is the true key
to meaningful cooperation among regional neighbors who wish to become
partners as well.
J. T. McHugh (ed.), Toward a North American Legal System

© James T. McHugh 2012
2 ● James T. McHugh
Therefore, the success of the NAFTA and the ongoing development of

the regional relationship of Canada, Mexico, and the United States depend,
in both the short term and the long term, on discerning or creating that
common legal ground. It does not require the creation of a unitary legal
system—far from it. The distinct legal cultures of these three continental
neighbors already have experienced a degree of cooperation that has advanced
greater mutual familiarity among its respective legal professionals, policy
makers, and other relevant parties. Nonetheless, greater understanding and
accommodation is needed in order for this regional cooperation to become
more meaningful and effective. In that way, these three sovereign countries
can coordinate their shared interests in promoting their separate prosperity
and security by harmonizing those institutions that are most vital toward
those cooperative goals—especially that most basic institution of law.
This book seeks to explore the complexities, possibilities, and challenges
of that North American legal harmonization and its consequences (both posi-
tive and negative) for future continental cooperation. That exploration occurs
at different levels of legal analysis. At the macro level, it occurs at the level
of public policy, broad theory, and constitutionalism. At the micro level, it
occurs at the level of applied law and legal norms, particularly focusing upon
categories of law that are most relevant to the economic and social goals of
North American cooperation. Each author will offer a unique perspective that
is, nonetheless, connected to a larger theme that already is occurring within
this continent—a theme of merging norms, values, and practices. Although
Canada, Mexico, and the United States are, and will remain, politically and
culturally distinct and sovereign, they share a regional identity that rivals
Europe and all of the other regions that are emerging in the global com-
petition of the twenty-first century. This book will offer a critical assessment
of all of these factors.
Matthew Simpson begins this exploration by assessing the parameters that
a North American legal regime encompasses. He also assesses the interaction
between law and business as a framework for harmonizing other legal activi-
ties and categories, including human resources and human rights. His chapter
provides a broad overview of the state of law among the North American
countries and the conceptual foundation upon which it is based. He surveys
the scholarship and practice in this area and concludes that a meaningful
understanding of this subject requires an appreciation of the complex polit-
ical and cultural environment in which it occurs, including the distinct, as
well as overlapping, legal ideas and values present among Canada, Mexico,
and the United States.
Patrick Glenn follows this assessment with a more skeptical appraisal of
the feasibility and desirability of this theme of legal harmonization at the
Introduction ● 3
continental level. He identifies significant reasons that scholars, practition-

ers, and policy makers should not be thinking in terms of a broad North
American legal system. He argues that the concept, itself, is vaguely con-
ceived and subject to a variety of possible constructions. He notes that law in
North America is not, unlike its European counterpart, systematic and lacks
an orderly basis for systematic development. Furthermore, the concept of
transnational legal norms is a challenge with global dimensions that requires
an acceptance and understanding of the international legal institutions that
already exist and already can provide a basis for a wider trend of legal harmo-
nization, which can be undermined by regional efforts in North America. He
offers many observations relating to these concerns and concludes that the
absence of specific efforts of legal harmonization in North America does not,
in any case, pose an obstacle to collaboration among Canada, Mexico, and
the United States; its government agencies; or its businesses and that absence
may avoid unnecessary future political controversy.
Michelle Egan provides a critical evaluation of the functioning of a sin-
gle market within a regional context and the significant interest in the legal
issues that arise as a result of the implementation of such a market and the
compliance of regional parties. While using the experiences of the European
Union as her model, she notes that the implications of this sort of com-
parison extend beyond Europe or North America into the global realm. She
argues that the role played by the new modes of governance that supranational
arrangements have introduced should be carefully analyzed. Furthermore, the
dynamics between negative and positive integration need to be understood in
order to appreciate the legal challenges that this sort of development actu-
ally entails. She observes that “negative integration” (generally in the form of
legal recognition of economic freedoms) tends to trump “positive integration”
(in the form of supranational regulatory policies), leading to concerns of pro-
moting formal legal institutions over substantive social policies. The example
of the European Union demonstrates, she contends, that the scale and effect
of European integration increasingly affect the autonomy of member states
with increasing constraints on tax, welfare, and social practices. The same
consequences could, it is suggested, be experienced by a North America that
is pursuing increased legal harmonization.
Jim McHugh contends that any movement toward greater legal har-
monization and the development of a continental legal regime requires an
appreciation of the constitutional context of the relevant sovereign countries.
He notes that international agreements that create cooperative associations of
one form or another, including free trade areas, require voluntary interaction
among the member states under their respective constitutional regimes. He
acknowledges that many factors, in addition to legal ones, can influence that
success. Nonetheless, he stresses that a relatively neglected consideration of

this comparative analysis is the difference in constitutionally sanctioned and
promoted institutional structures among these governments. From a broader
perspective, he contends that neo-institutional theories suggest that this
formal-legal emphasis is important because different governmental structures
can affect rational choice decisions regarding policies, both domestic and
international. His chapter uses that perspective to assert that the Canadian
constitutional presence of both a parliamentary system and a strong yet
decentralized federal arrangement (which differs from the constitutional
provisions of Mexico and the United States) may be significant. Those con-
stitutional differences may facilitate Canada’s role in both negotiation and
practical implementation of the diplomatic process of legal and policy harmo-
nization, thus providing a constitutional foundation for further continental
cooperation in this area.
Jay Westbrook shifts the focus from theory to application with his chapter
devoted to the role that supranational organizations within North America
may contribute to continental legal harmonization. He begins his analysis by
assuming that greater legal cooperation within NAFTA is desirable (which he
acknowledges to be, among some observers, a controversial proposition) and
acknowledging that there are social costs connected with any move toward
greater economic globalization (including at a regional level) that will prompt
ongoing resistance to NAFTA. Nonetheless, he persists in asserting that a
strong, integrated NAFTA is part of the solution to the problems of glob-
alization, including through the use of supranational institutions that can
define and frame specific areas of shared legal rules, principles, and values.
Complicating this process is the fact that NAFTA is both less developed and
more developed than generally is appreciated and is influenced by ambigu-
ous reactions to the prospect of greater cooperation (including in terms of
legal harmonization) in Canada, Mexico, and the United States. Nonethe-
less, he argues that greater regional cooperation of the sort that has been
pursued by the European Union constitutes the only viable alternative for
North America (as well as other regions of the planet) to the negative effects
of a wider globalization.
Susan Karamanian continues this applied institutional emphasis by argu-
ing that the filing of cases and the work of the arbitral tribunals in relation to
disputes falling under the authority of NAFTA should be regarded as a posi-
tive development. Arbitral cases and decisions expose problems with domestic
processes of Canada, Mexico, and the United States that, sometimes, violate
basic principles of fairness. The legal decisions of North American tribunals
offer protection to foreign investment, but they also assist NAFTA member
Introduction ● 5
states in aligning their respective domestic practices with international stan-

dards of due process and fundamental fairness. That result is true even when
a tribunal does not issue a judgment that is adverse to the host nation. The
arbitral process, itself (particularly when it results in a published award that
contains an extensive review of the host nation’s conduct), elaborates and fur-
ther defines relevant legal standards, both domestically and regionally, and
places them within a meaningful legal and political context. In that way,
arbitral tribunals are not merely an institutional product of NAFTA and its
trend toward increased legal harmonization but, actually, a shaper of that
development and continental legal norms.
Arthur Cockfield provides a chapter that is even more specifically applied.
In particular, he focuses upon the effect that the principle of “subsidiarity,” as
relating to NAFTA, has, and will continue to have, upon the critical category
of cross-border taxation and regulation within North America. This princi-
ple is an important component of regional and supranational development,
especially as it addresses concerns of sovereignty and localized control, and it
has been an essential element in the evolution of the European Union. He
notes that, according to the subsidiarity principle, a supranational authority
may enact laws only under circumstances in which member states agree that
a particular practice or action of individual countries is insufficient to achieve
an agreed regional goal. NAFTA does not expressly articulate that principle
or (except in extraordinary cases) authorize institutions to promote harmo-
nized laws among the North American governments. He applies this idea to
a practical analysis by arguing that the adoption of a strict subsidiarity prin-
ciple will allow NAFTA governments to continue to “compete” with their
tax and regulatory regimes while reducing the risk that this competition will
lead to effects that could harm their respective economic interests. He further
argues that, in terms of tax policy, a strict subsidiarity principle will encour-
age the NAFTA governments to develop modest, centralized tax institutions
to engage in heightened multilateral coordination. That effort would facili-
tate legal harmonization while ensuring that the harmful policy consequences
of Canada, Mexico, and the United States maintaining different national tax
regimes are minimized.
Jose Caballero concludes the book with an excellent overview of the legal
perspective of the NAFTA from a Mexican perspective and an assessment of
the prospects for the future. It is far from clear that greater North American
cooperation is inevitable or even desired. However, that process has not been
diminished, despite occasional political rhetoric in opposition to NAFTA and
other expressions of continental cooperation. Likewise, North American legal
harmonization is far from inevitable and it faces many challenges. Therefore,
the concept of a formal North American legal “system” is hardly a feasible
possibility for the foreseeable future. Yet if a unified North American legal
system such as the one that is possessed, and continuing to be developed, by
the European Union is not an imminent prospect, greater cooperation among
Canada, Mexico, and the United States in many areas is likely to continue in
some form. As the practical expression of all policy desires, law provides the
most prominent and likely form.
CHAPTER 1
Assessing the Prospects of North

American Legal Harmonization
Matthew T. Simpson
Introduction
Significant disparities in legal regimes will inevitably lead to an allocation of eco-
nomic resources at least partially based on the identification of the least restrictive
regulatory environment.1
With the implementation of the North American Free Trade Agreement and
the rise of globalization, the countries that make up the continent of North
America—Canada, Mexico, and the United States—are becoming increas-
ingly interdependent on one another, and as a result, marked integration and
harmonization of culture, economies, regulations, and laws can be seen.
In the interest of sketching the parameters of a North American law that
defines the way in which firms do business in North America and possibly
becomes a framework for harmonizing other sets of laws—from transactions
and corporate law through human resources, human rights, and environ-
mental laws—this chapter will begin with a discussion of those factors that
encourage progress toward North American legal harmonization. Chapter 2
will begin with a definition of the term harmonization as it is to be used in this
context. Chapter 3 will discuss historical attempts to harmonize legal regimes
in the Western Hemisphere. Following this, Chapter 4 turns to those factors
that act as impediments to the development of North American law, includ-
ing the civil/common law dichotomy present in the member nations’ legal
traditions and the role federalism plays in shaping those institutions. Next,
Chapter 5 will review those factors that encourage progression toward a North
American law, including the relative success of other regional blocs such as the

8 ● Matthew T. Simpson
European Union, the role the North American Free Trade Agreement plays
in the harmonization of laws among the three countries, and finally the role
of technology and the rise of transnational legal mobility in elevating interna-
tional legal awareness and transnational communication. Chapter 6 will then
consider several areas of potential legal harmonization in North America and
any efforts to achieve such harmonization already under way. Finally, the lit-
erature directly touching on the issue of North American legal harmonization
will be reviewed highlighting any specific North American institutions that
are called for in Chapter 7.
This work is not intended to be exhaustive, but rather serves to provide a
stepping-off point for future analysis of North American legal harmonization.
It is also not intended to be an endorsement of any of the works or ideas
referenced, but rather a broad survey of the many discussions surrounding
legal harmonization without prejudice to the author’s personal view.
Harmonization of Laws
Before any analysis legal harmonization is conducted, it is important to estab-
lish how the term harmonization is used in this context. Stephen Zamora uses
it to connote cooperation and harmonious interaction, as encompassing the
“entire range of influences that may come to bear on neighbouring legal sys-
tems, either consciously through formal government action, or unconsciously
due to the incorporation into one regime of concepts generated by another
legal regime.”2 Likewise, Laura Spitz describes harmonization, not in the neg-
ative sense of sameness and “a rush to the bottom to further facilitate the
globalization of advanced capitalism,”3 but rather as the concept of “different
laws in different jurisdictions aimed at creating a workable/sensible whole.”4
Patrick Glenn distinguishes between formal harmonization—that which
the European Union has undertaken through the establishment of
supranational judicial bodies and legislation—and informal harmonization—
that which is found in existing structures and processes and facilitates rather
than imposes.5 According to Glenn,
. . . the harmonization process . . . is often thought of as an evolutionary pro-

cess, leading to greater and greater levels of uniformity and correspondingly
greater levels of supranational governance. The process of informal harmoniza-
tion is not, however, an evolutionary process. It does not project further levels
of uniformity and elimination of diversity, but rather the reverse, that unifor-
mity is not an objective in itself and that harmony flows from the recognition
of diversity and the ability to work within it. Measures of harmonization are
thus not imposed but allowed to develop, or at most encouraged. The Americas
Assessing the Prospects of North American Legal Harmonization ● 9
would thus exist not as an evolutionary process, but as an equilibrium amongst

its diverse peoples.6
Loukas Mistrelis, like Glenn, distinguishes between the types of harmoniza-

tion but instead refers to it as hard and soft law.7 For Mistrelis, hard law is the
international treaties or conventions, or any form of national legislation that
harmonizes laws.8 Soft law, also known as private harmonization, are those
laws that do not fall within the hard law category, and include model laws,
restatements, legal guides, and model rules.9
Finally, talking in terms of unification (which he uses synonymously for
harmonization), Andrew Walker describes the different challenges associated
with unifying individual legal standards versus unifying entire legal systems.
Walker argues that “legal standards are much more simply unified than legal
systems. The unification of legal standards amounts to little more than the
normalization of specifications, such as the infusion of the metric system into
U.S. commerce. Legal systems reflect cultural diversity and the value that
diversity adds to the economy of a democratic country. It is for this reason
that differing legal systems are not so simply normalized.”10
Prior Harmonization Efforts

In undertaking a consideration of the harmonization of North American law,
a review of prior efforts to harmonize foreign legal systems is helpful. This
section will begin with an account of the historical context within which this
harmonization effort exists, primarily with a focus on the history of harmo-
nization in the United States, and will conclude with an analysis of prior
efforts to harmonize legal regimes in the Western Hemisphere generally and
North America specifically.
Kurt Nadelmann of the New York University Law School provides an
excellent overview of harmonization activities involving the United States.
The first effort to harmonize American law with a foreign state occurred in
1874, when the government of the Netherlands informed the United States
that it had proposed to Austria, Belgium, France, Germany, Great Britain,
and Italy to send delegates to a conference on Enforcement of Foreign Judg-
ments.11 The United States was invited to send a delegate in the interest
of creating a uniform codification on the enforcement of judgments from
abroad.12 Unfortunately for the Netherlands, the United States, among oth-
ers, turned down the request, and the conference never took place.13 Within
the next few years, the United States was asked twice to attend discussions
on the unification of law, once by Peru (to which the U.S. Secretary of
State Hamilton Fish rested his objection on concerns of federalism and the
incongruence of the common law and civil law traditions) and once by the
Italians.14 On both occasions the United States rejected the invitations.
In 1888, the U.S. Congress passed an act authorizing the president “to
call an International American Conference for the purpose of discussing and
recommending for adoption to the respective governments some plan for
the settlement of disagreements and for considering questions relating to
the improvement of business intercourse and means of direct communica-
tion between the participating countries.”15 There was later a great exchange
between the unofficial U.S. and Argentine representatives at the conference,
during which the U.S. representative argued Congress did not have the
authority to mandate to the states the adoption of a codified set of rules (again
the federalist issue was used defensively) to which the Argentine representa-
tive retorted that “if the states can not make treaties, and if the Federal power
can not, then the United States would be inferior in constitutional capacity
with respect to treaties, to all the countries of the world.”16 Despite the dis-
cord, the governments unanimously agreed to study the resulting Montevideo
Treaties. Following this initial conference, two more conferences were held,
the first resulting in a failure to ratify and the second adopting a convention
for the establishment of an International Commission of Jurists to draft a
Code of Private International Law and a convention on Public International
Law.17 This work was interrupted by the outbreak of World War I.
Following World War I, the American Institute of International Law
(AIIL) commenced the American International Law Project. The AIIL, an
adjunct of the Carnegie Endowment for International Peace, spearheaded an
effort to codify an “American International Law” in the 1920s.18 The institute
appointed a committee for the purpose of creating draft rules of international
private law, and the committee met in Rio de Janeiro in 1927, the first time
the United States was officially represented at a conference on Private Inter-
national Law.19 Following this initial meeting, and the later adoption of the
Bustamante Code,20 the Seventh International Conference of American States
declared in 1933 that the Pan-American Union should “draft projects for the
simplification and uniformity of powers of attorney, and the juridical person-
ality of foreign companies, if such uniformity was possible.”21 Once again,
efforts at legal harmonization were interrupted by world war, and following
the death in 1943 of Dr. James Brown Scott, the founder of the AIIL. The
AIIL collapsed and the endowment showed little interest in continuing the
AIIL’s work on developing a regional American law.
In the early 1960s, an effort to revitalize the AIIL gathered steam, and a
group of experts gathered in Costa Rica to determine the future of the insti-
tute. At the conclusion of the meeting, the decision was made not to restore
the AIIL, but to create a new institution that would work to further the
integration of the legal systems of the Western Hemisphere primarily through
the promotion of international law in education. The Inter-American Insti-
tute for International Legal Studies (IAIILS) was subsequently formed in
1963 and promised to play an important role in promoting the cause of
regionalism among students of world public order. At the formation of the
institute, “emphasis was put on the problem of teaching, upon the study
and research of scholars free from government direction and influence, whose
work would in time influence governments and make possible more effective
work on the part of official codification agencies.”22 Very little can be found
on the efforts of the IAIILS after the mid-1960s, the role they played in the
encouragement of the study of international law, and any residual effect this
had on the harmonization of laws in the Western Hemisphere.
Stephen Zamora adds to the discussion of the historical efforts to har-
monize law in the Western Hemisphere by attributing the relative lack of
harmonization of laws among the North American neighbors to the influ-
ence of economic, political, and cultural factors.23 According to Zamora,
for Mexico, harmonization was avoided, as “Mexico’s penchant for adopt-
ing authoritarian/centrist legal models dominated Mexican professional and
government elites until the mid-1980’s” and protection was sought from the
harmful effects of U.S. influence.24 For the United States, the “lack of har-
monizing influences from abroad stemmed from a deeply held belief that the
US way of doing things is generally best, and that [they] owe [their] eco-
nomic and military superiority to the fact that [they] invent models, rather
than import other societies’ models.”25 Finally, Canada’s traditional reliance
on Great Britain and France for legal models has limited the impact any
harmonization attempts may have had on the Canadian legal system.26
Impediments to Creating a North American Law

Laws are best reconciled by the realization that it is people who conflict, and not
simple, inert texts. H. Patrick Glenn27
With an understanding of the historical underpinnings of harmonization

efforts in the Western Hemisphere, this chapter now turns to those factors
that act as impediments to the harmonization of North American laws. Two
primary factors that impede legal harmonization stem from the distinct legal
traditions of the three countries, namely, the challenges the common and civil
law legal system dichotomy presents and the influence of federalism on the
legal and political environments in each of the three countries.
Civil and Common Law Traditions

Canada and the United States share similar common law traditions, while
Mexico’s legal system is primarily based on a civil law tradition.28 There is
a surfeit of literature on the respective legal traditions of each of the three
nations, far more than can be discussed in this chapter. Generally speaking,
this diversity of legal tradition has historically posed an impediment to the
harmonization of the laws of the three countries.
For instance, Stephen Zamora argues that the adversarial litigation system
of the United States and Canada does not fit well with the “characteristics of
cooperation and authoritarianism that mark Mexican society.”29 According
to Zamora, compared to the United States, Mexico is not a litigious society.
“Litigation between parties is particularly infrequent. Public enforcement of
regulatory laws tends to be carried out through administrative procedures,
rather than by recourse to litigation. Administrative procedures allow more
room for compromise than litigation.”30
Zamora also highlights the ideological differences that exist between Latin
American countries and the United States, and the general resistance to the
importation of U.S. legal norms. “The Latin American republics have used
doctrinal theories to oppose the incursion of US legal models; because most of
the other countries of the region follow the civil law tradition, it was easy for
each country to oppose the replication of US legal models by asserting that
they were not bound to a common law foundation and such legal models
would not operate effectively in the world of neo-romanist or civil law.”31
Despite the challenges facing the harmonization of common and civil
law traditions illustrated by Zamora, however, the Organization of American
States (OAS) acknowledges the benefits of harmonization and actively pur-
sues such harmonization in the interest of encouraging cooperation among
its member states. According to Enrique Lagos,
. . . several entities at the OAS promote and facilitate the coexistence of the
common law and civil law systems in the Americas. For example, there is
the work of the Inter-American Juridical Committee and the activities of the
OAS Secretariat for Legal Affairs. The IAJC, a legal body specifically provided
for in the Charter, is an advisory body on juridical affairs. One of the purposes
of the IAJC, as noted in Article 99 of the OAS Charter is: to promote the pro-
gressive development and the codification of international law[;] and to study
juridical problems related to the integration of the developing countries of the
Hemisphere and, insofar as may appear desirable, the possibility of attaining
uniformity in their legislation.32
In addition, the OAS Secretariat often undertakes comparative law studies

of the member states, aiming its activities at unifying and harmonizing each
member state’s legislation in the areas of public and private international law,
including the legal aspects of regional economic integration. Further, former
Secretary General of the OAS, Cesar Gaviria, reorganized the Secretariat for
Legal Affairs to concentrate the lawyers’ efforts on the development of public
and private international law and on strengthening juridical cooperation with
member states.
Beyond conscious efforts to harmonize civil and common law traditions,
Jorge A. Vargas argues that harmonization has already begun to occur between
Mexico and the United States, as evidenced by the “Americanization of
Mexican law” that resulted from NAFTA. Vargas also posits the reverse is true,
that there is an increased influence of Mexican law on American law, resulting
from the migration of Mexicans in the United States and the increased cross-
border trade and investment that has occurred.33 According to Vargas, “the
more economically affluent Mexican-Americans become due to their better
education and training, the more investment and business transactions are
likely to take place between the United States and Mexico, thus involving
Mexican law.”34 Further, he argues that “the cascade of legislative changes that
the Salinas administration imposed on Mexico at such a rapid pace may have
been motivated by the strong desire of transforming Mexico’s legal system to
put it more in symmetry with NAFTA. In other words, Mexico’s legal system
was Americanized so that NAFTA and its implementation would be gently
eased into place in Mexico through the adoption of those legal changes.”35
Finally, Casey Burgess minimizes the impediment that the common and
civil law dichotomy might pose to North American legal harmonization by
highlighting the successful relationship between common law and civil law
jurisdictions in Canada and the United States.36 Specifically, Burgess identifies
the ability of Louisiana and Québec to maintain their civil law traditions
while existing in a common law nation. It is this ability for common and civil
law traditions to coexist that suggests that while the civil law/common law
dichotomy will invariably add a layer of challenge to the progression of legal
harmonization in North America, the dichotomy in itself should not present
an unassailable barrier.
Federalism
Blacks Law Dictionary defines federalism as “the legal relationship and dis-
tribution of power between the national and regional governments within
a federal system of government.”37 According to H. Patrick Glenn, North
America has 99 private law jurisdictions. “There are 32 in Mexico, count-
ing the Federal District; 51 in the U.S.A., counting both Hawaii and Puerto
Rico; and 13 in Canada, counting the three northern Territories.”38 To these
96, he then adds the three federal jurisdictions, “each of which has a private
law dimension of varying importance.”39 The relative power of the more than
90 subfederal jurisdictions varies by country, with Canada arguably having
the greatest degree of federalism, followed by the United States, and Mexico
being the most centralized of the three countries.40
In the United States, the Supreme Court determined that the signing of
international treaties was within federal jurisdiction in the case of Missouri
v Holland. In Holland, the Court found a treaty between Britain and the
United States regulating the killing and sale of migratory birds was a proper
exercise of the treaty power delegated to the U.S. government by Article 2
of the Constitution. Likewise, in Canada and Mexico, the signing of inter-
national treaties is the jurisdiction of the federal government, despite active
involvement by provincial ministers in Canada.
The issues of federalism as they relate to North American legal harmo-
nization are varied and the opposing sides well entrenched. No two states or
provinces share identical interests, nor do they follow identical legal histories.
Any attempt to develop a common legal system among them will thus battle
inconsistencies and varying interpretations, not to mention a power struggle
between state and federal governments that is front-page news in Canada and
the United States.
Encouragements of a North American Law

Countering the impediments to the creation of a North American law
mentioned earlier in this chapter, there are several factors that encourage
progression toward a North American law.
The North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) is the single greatest
catalyst for progress toward a North American law. The economic and social
integration resulting from NAFTA encourages the member states and their
citizens to find new ways to reduce barriers to effective competition within
North America.
NAFTA, itself, however, requires very little on the part of the member
states in terms of changing their domestic legal systems. There are relatively
few provisions in NAFTA that mandate domestic law standards of a non-
trade nature.41 According to Stephen Zamora, “several NAFTA provisions,
do, however, establish general rules that require each of the NAFTA par-
ties to conform their domestic legal regimes to the NAFTA standard. That
said, these provisions are so broadly drafted that they do not require major
efforts to redraft domestic laws to conform to the NAFTA standard.”42 The
most extensive set of substantive domestic law is Chapter 17, which sets
out intellectual property standards and backs them with a dispute resolu-
tion mechanism.43 The agreement does, however, “include important new
rules concerning the formation and application of domestic laws and regula-
tions. In large part, these provisions insure transparency in the rule making
apparatuses of each country, so that, in addition to the citizens of the rule
making country, foreign governments and their citizens can understand and
attempt to provide input in the rule making process.”44 These transparency
measures “represent an attempt towards convergence in the rule-making sys-
tem itself ”45 and “permit foreign interests to comment on the formulation of
domestic laws and regulations.”46
Further, according to Patricia Hansen, in the United States, “Congress has
[sic] limited the ability of domestic courts to consider the United State’s obli-
gations under NAFTA when construing domestic statutes. No NAFTA pro-
vision that is inconsistent with any federal law is to have any effect, and the
federal statute implementing NAFTA may not be construed to amend or
modify any federal law ‘unless specifically provided for’ in the Agreement.”47
Indirect Harmonization
Though NAFTA was designed as a free trade agreement, facilitating the flow
of goods and services across the borders of its member states, and the sub-
stantive legal changes it called for were relatively minor, the agreement’s
impact on North American legal harmonization is much greater than its
few explicitly harmonizing provisions. Since the inception of the agreement,
scholars identified the secondary impact of NAFTA on the legal systems of
the three countries. Several argue that although NAFTA did not create com-
mon legal institutions or did not take many overt steps to integrate the legal
environments of the three countries, the agreement has in fact led to legal
integration.
H. Patrick Glenn argues that “there is an inevitable process of adapta-
tion of local law to the new or emerging circumstances of the common
market and this process accelerates the informal harmonization or accommo-
dation which has already been taking place.”48 Glenn highlights the Mexican
adoption of legislation providing for non-possessory security interests in
moveable property. Pressured by Canada and the United States’ flexible forms
of non-possessory security over many types of movables, the Mexican govern-
ment identified the great disadvantage Mexican enterprises were faced with.
As such, it reformed its legislation, and “all of North America is now cov-
ered by roughly comparable legislation.”49 Glenn also argues that Mexico
has moved away from its traditional adherence to the Calvo Doctrine and
the principle of “strict territoriality in matters of choice of law,” and as such
Mexican Private international law has been brought in line with its northern
neighbors.50 Canada has also changed its approach to private international
law since the inception of NAFTA and its predecessor, the Canada-U.S. Free
Trade Agreement (CUFTA). According to Glenn, when the CUFTA came
into force, the Canadian Supreme Court changed the relative restrictive pol-
icy against foreign judgments and decided that “foreign judgments should be
recognized in Canada” whenever a “real and substantial connection” existed
between the case and the adjudicating court.51
Luis Rubio argues that NAFTA will “require, out of convenience rather
than obligation, important changes in the [Mexican] legal structure and,
in particular, in the importance attributed to legal procedures . . . [T]he dis-
pute resolution mechanism adopted by the contracting parties requires not
only the professionalization of government decision making, but also the
adoption of regulations and laws that are operational without the tradi-
tional level of government discretion.”52 Glenn concurs, and argues that
“National laws have to change, not because NAFTA requires change, but
because NAFTA has changed the context in which national laws function.
To continue to function as they should, in the new environment, they must
be adapted.”53 Likewise, Stephen Zamora argues that the changes in the legal
systems of the member states brought on by NAFTA are more the result of
governments responding to the economic ramifications of NAFTA, rather
than any need to harmonize their laws to be consistent with NAFTA.
According to Andrew Walker, “a judicial decision-making process is a
series of value judgments. The increase in transactions with foreign parties
and foreign components in the wake of NAFTA is having a direct effect on
the legal systems of its member countries because it internationalizes the scope
of the value judgments made by domestic judges. As trade liberalization and
advances in communication and transportation allow market forces to bring
Mexico, the United States, and Canada closer together, legal authorities in
each country must perform more analyses that reconcile their legal systems
with the legal systems of their trading partners.”54
Ultimately, H. Patrick Glenn argues that “above all, NAFTA facili-
tates and multiplies legal exchange, and legal understanding, between the
NAFTA countries . . . The flow of legal transactions in a free trade area will
accentuate the legal convergence already underlying the law of the free trade
area.”55
NAFTA Dispute Resolution

The NAFTA was ground breaking with its dispute resolution mechanisms.56
Between 1989 and 1994, there were a total of 57 disputes under Chapter 18
(5 cases) and Chapter 19 (52 cases) of the CUSFTA.57 The Chapter 1958
(AD-CVD) disputes affected around U.S.$ 7 billion in trade (the lumber dis-
pute accounted for almost U.S.$ 6 billion).59 On average during this period,
the United States and Canada traded U.S.$ 185 billion annually. Disputes
affected less than 4 percent of two-way trade.60 Similarly, under the NAFTA,
between January 1994 and 2007, there were a total of 129 disputes (includ-
ing Mexico) under Chapter 19 (125 cases) and Chapter 20 (4 cases) of the
NAFTA.61 The Chapter 19 dispute cases involving Canada and the United
States between 1994 and 1999 affected U.S.$ 11 billion in trade out of an
average annual trade of over U.S.$ 303 billion—again under 4 percent of
total trade.62
It is important to note that the NAFTA dispute resolution process is lim-
ited to only those types of disputes explicitly proscribed for in NAFTA;
only those disputes where the cause of action is directly accounted for in
NAFTA can be dealt with by the NAFTA dispute resolution process. All
other disputes must progress via domestic routes. “The domestic judicial
institutions of the NAFTA countries have largely been prevented from play-
ing any constructive role in the resolution of interstate disputes arising under
NAFTA.”63
NAFTA’s Failure to Encourage Greater Legal Harmonization

Despite what many see as positive steps taken by the NAFTA toward the
goal of legal harmonization, many scholars are critical of the agreement for
not going far enough toward legal harmonization and failing to adequately
balance the interests of the three parties in its legislation.
According to Angel R. Oquendo, an American or a Canadian (not nec-
essarily including Quebec or Louisiana) would feel right at home at any of
the proceedings, but a Mexican jurist would find the procedure completely
foreign. Oquendo highlights the influence of the common-law legal tradi-
tion of the United States on NAFTA, specifically Chapter 19’s procedural
requirements.64 He argues that the influence of the common law system
can clearly be seen in the “selection of the panellists [sic] the pleadings, the
announcement of the written decision at the end, the scope of review, and
the distribution of costs.”65 Further, he argues that the Chapter 19 procedure
proves a “quintessential common law procedure,” inasmuch as it is based on a
set of discrete and self-standing rules, organizes all procedural activity around
a single hearing, and assigns the task of guiding the process to the partici-
pants.66 Oquendo argues that the Mexican civil law procedure is immensely
different from the U.S. and Canadian common law systems, insofar as it does
not allow for peremptory challenges, the short pleading stages do not aim at
distilling a limited set of issues for a trial, judgments include short opinions
and no dissents or concurrences, the appeal involves no factual deference to
the trial court, and the losing party pays the attorney’s fees. More impor-
tantly, according to Oquendo, the Mexican system “calls for a systematically
integrated procedural code, a series of loosely connected oral and written pro-
ceedings which gradually define the issues, and a decision maker in charge of
moving the process forward.”67
Oquendo thus criticizes NAFTA for imposing an Americanized legal sys-
tem of Mexico. “The process leading to the Agreement did not take the
form of a conversation on bridging the legal distance between the parties,
but rather that of an imposition of legal conformity on the weakest party.
Mexico not only had to Americanize its legal system, but also had to accept a
pre-fabricated legal superstructure based almost entirely on U.S. Law.”68
Julie Mertus and Elizabeth Breier-Sharlow are also critical of NAFTA for
failing to take into account the Mexican Civil law procedures.69 They argue
that including civil law mechanisms such as an active decision maker or flex-
ible process would allow participants in the NAFTA dispute process cope
with the vagaries of national law in an “international forum.”70 They further
argue that common law concepts and procedures familiar to Canadian and
American lawyers and judges “are a barrier to Mexico’s full participation in
the agreement.”71
European Union
The North American Community has much to learn from the European Union—
about both what it should adapt and what it should avoid.72
The European Union experience allows us to better understand the problems

and possibilities of legal harmonization in North America. “The European
model of legal integration, though inappropriate in North America, is rele-
vant . . . as Western Europe’s transfer from balkanization to interdependent
prosperity, and Eastern Europe’s transfer into a freer and more prosper-
ous region, share many of the same challenges and dividends with the
NAFTA trading partners in their development as a trade block.”73 According
to Andrew Walker, the reason the EU model of integration is not appropri-
ate in North America is that it would “require the forfeiture of centuries of
dispute resolution, scholarship, and domestic integration of competing legal
institutions within each country. It would also present a break with cultural
expectations at the bases of each system, and a major disruption in the gov-
ernance of complicated trade networks within each country that are much
larger than the trade that exists within individual European countries.”74
According to John Fitzpatrick, the objective of a comparison between the

EU and the NAFTA area is “to determine which substantive and institutional
elements of a regional regime are necessary for achieving limited economic
integration in North America.”75 Fitzpatrick’s analysis provides excellent com-
parison between the North American and European regions, including the
political, legal, and cultural variables that distinguish them.
H. Patrick Glenn suggests that in Europe, “an underlying concept of
global disunity of laws [sic] gave rise to a generalized presumption of con-
flict, necessitating a complex, expensive, and time consuming processes of
allocation of cases amongst states,”76 while in North America, “the phenom-
ena of American legal diversity and legal dialogue yield a general conclusion
that the laws of the Americas are subject to a presumption of harmony rather
than a presumption of conflict.”77 It is this presumption of harmony of laws
in the Americas that Glenn relies on to argue that there is little need for a for-
mal measure of harmonization such as the institutions operating in Europe
because the conflict between the laws is greatly reduced.78 According to Glenn
there is greater jurisdictional diversity in the Americas in private law, sig-
nificant linguistic commonality, and a greater integration of civil law and
common law traditions that make North American legal harmonization more
attainable than in Europe.79
Also of value to an exercise comparing harmonization efforts in North
America and Europe is an understanding of the institution that facilitates
European harmonization. The European Commission, acting as the EU’s
policy and executive engine, is composed of 25 commissioners, one from
each member state, and is supported by a substantial staff located pri-
marily in Brussels, Belgium.80 In matters relating to economic integration
such as trade and investment, only the commission has the right to pro-
pose legislation for approval by the EU Council and European Parliament.
As “Guardian of the Treaties,” the commission ensures that EU laws are
applied and upheld throughout the European Union, prosecuting member
states and other institutions for failing to follow treaty precepts or otherwise
apply community law.81
In addition to the European Commission, the European Court of Jus-
tice (ECJ) ensures uniform interpretation and application of both the treaties
establishing the European communities and the secondary legislation and
other law adopted under their authority.82 To enable it to carry out that task,
the ECJ has wide jurisdiction to hear various types of cases. For example, it
has the authority to hear and issue binding judgments in lawsuits that seek to
annul a law adopted by the European Union, to compel an EU institution to
act, or to require that a member state comply with EU law.83 The ECJ may
issue clarifications of EU law (in response to a request for a preliminary ruling
from any member state court) and hears appeals on legal questions arising out
of cases at the Court of First Instance.84
The European Union, like North America, has to deal with federal or
subsidiarity concerns, and Burley and Mattli highlight the success of the ECJ
in acting as a supranational body while not “stepping on the toes” of the
domestic courts. “The ECJ only ‘interprets’ the relevant provision of com-
munity laws, and leaves it for the national court to apply it to the facts
of the case. In practise, of course, the ECJ frequently offers a virtual tem-
plate for the subsequent lower court decision. But, the all-important fiction
is preserved.”85
Garrett et al., however, suggest that the ECJ is not immune from political
controversy or influence. They specify the conditions under which the ECJ
makes decisions that declare illegal national laws, regulations, or practices;
express how member governments act to those decisions;86 suggest the polit-
ical decisions surrounding a case, the size of the country, and the economics
involved; and suggest that the political power of the country all play a role in
how aggressive the ECJ ruling turns out to be.87
This consideration of the European Union and its institutions is just the
beginning of deeper investigation that is needed for a thorough consideration
of the lessons to be learned from the European experience.
Transnational Legal Mobility

Fluid transnational mobility of legal professionals has the potential to impact
considerably the harmonization of laws of North America.88 Specifically,
Glenn discusses the number of large firms actively recruiting lawyers trained
in the law of all three countries and the rapid expansion of firms across the
continent.89 Adding that “Thinking in terms of the conciliation of law is
necessary, first of all, on the part of legal practitioners. It is the ‘practicing
lawyers who are making the running’, in terms of overcoming jurisprudential
and doctrinal obstacles to their client’s transnational case, in seeking means
of reconciliation of different laws.”90 Finally, Glenn argues that the rise and
acceptability of the large, multinational law firm, though not leading to the
continent-wide mobility of lawyers in North America, as is the case in Europe,
has led to “intense cross-border practice,” which has played an “important
role in the process of informal harmonization.”91
R. Buxbaum and K. Hopt wrote, “a common profession, with a com-
mon professional language, may well itself be a surrogate for a common
substantive set of rules.”92 Arthurs and Kreklewich examine the changes in
the production of law, legal institutions, and the legal profession in Canada
following the signing of NAFTA and conclude that the resulting trans-
formation of legal production has reshaped the role of law experts and
aggravated existing tendencies of stratification, concentration, diversification,

and marginalization within the legal profession itself.93
Technology
With constant developments in communications technology, Canadians,
Americans, and Mexicans are growing closer as they more easily and more
frequently experience each other’s culture. This transnational exchange of
culture, facilitated by rapid developments in technology, aligns the interests
of the citizens of the three countries and makes a harmonization of legal
standards more feasible, and more likely. Laura Spitz argues that “recent
technological changes have rapidly provided for enhanced communication
possibilities without regard for national borders.”94 “It is no longer possible
to change a law in British Columbia, for example, without the change and
the reasons for it becoming immediately available to citizens world wide.”95
Areas of Potential Harmonization

Having taken a broad survey of the material that exists on the encouragements
of, and impediments to, North American legal harmonization, this chapter
will now turn to the specific areas of law that have the greatest potential for
harmonization in North America. Some areas show great promise for harmo-
nization and in fact are already taking great strides toward that goal. Others
are much farther away from any integration, and are not discussed in this
chapter. Corporate and commercial laws feature most prominently with the
greatest likelihood of success for legal harmonization.
Insolvency
If globalization does proceed apace, then the pressures for a universal system for
managing the financial crises of multinational companies will prove irresistible:
global bankruptcy for a global market.96
The area of insolvency law is arguably the most developed with respect to
creating a single North American law. There have been several efforts to har-
monize insolvency laws, some dealing specifically with the North American
partners and others with a more global scope. In light of the economic melt-
down of 2008 and 2009, perhaps never before has it been more timely to
consider the extent of harmonization in restructuring and insolvency.
Several organizations have made great efforts to harmonize insolvency
laws. The United Nations Commission on International Trade Law
(UNCITRAL) has created a Model Insolvency Law, which is beginning to
receive increased attention and acceptability globally. For a very detailed

and thorough analysis of the UNCITRAL Model Insolvency Law, see John
Pottow (2006).97
The International Bar Association is also actively trying to harmonize
global insolvency laws with its Cross Border Insolvency Concordat.98 The
concordat provides a framework for harmonizing cross-border insolvency
proceedings by suggesting generalized principles that are then tailored to par-
ticular circumstances and then adopted as a practical approach to dealing with
the process.99 Leslie A. Burton provides an overview of the concordat and
the UNCITRAL Model Law on Cross-Border Insolvency in the European
context, and calls for a convention, without opt-out provisions, as the only
equally binding approach to insolvency law harmonization.100
For an excellent discussion of existing international bankruptcy con-
ventions as of 1995, see David Cook, who discusses the Scandinavian
Bankruptcy Convention, the European Draft Bankruptcy Convention,
the Council of Europe’s Bankruptcy Convention, the Latin American
Bankruptcy Agreements (The Mentevideo Treaty and the Bustamante Code),
the IBA’s Model International Insolvency Cooperation Act, and finally the
U.S.-Canada Bankruptcy Treaty. In his assessment of these agreements, Cook
argues that only three of these agreements have been ratified and that the
NAFTA nations must “take a new approach towards bankruptcy agree-
ments if they wish to enact a truly successful [North American Bankruptcy
Agreement].”101
According to Dargan, there was an initial attempt at a U.S.-Canada
Bankruptcy Treaty—it was proposed but never ratified.102 The American
Law Institute (ALI) has also made efforts to harmonize insolvency laws in
North America. The first international project developed by the ALI, the
Transnational Insolvency Project, deals specifically with the North American
members in the interest of harmonizing their insolvency laws. According to
Michael Traynor, “the project has been of great value in identifying areas
for cooperation in international insolvencies and in building relationships
and opportunities for courts in the three countries to work out rationally the
problems of a multi-jurisdictional insolvent party. The project also provides
a foundation for potential expansion of the work to include other jurisdic-
tions.”103 A more detailed analysis can be found in International Insolvency by
the Federal Judicial Center.104
Emilie Beavers argues that the NAFTA members should “consider harmo-
nizing their bankruptcy laws, both procedurally and substantively.”105 The
goal of such harmonization according to Beavers is to “maximize the value
of the estate for all creditors. Other benefits of harmonization include sim-
plification of procedural and substantive law, which leads to more accessible
and user-friendly bankruptcy codes and more predictable systems with lower
transaction costs.”106
Jay Westbrook sees promise for the harmonization of North American
bankruptcy laws. According to Westbrook, “The key similarity among the
three countries in debtor-creditor law is that bankruptcy is national law in
all three, while the law of secured credit and other key debtor-creditor laws
are, for the most part, regional.”107 Westbrook then proceeds to survey several
of the international insolvency projects mentioned earlier in this chapter and
concludes that “international issues are beginning to flow into the office of
bankruptcy lawyers all over the United States. They cannot be held back.”108
Intellectual Property and Patent

The National Law Center for Inter-American Free Trade completed a study
on the cross-border trans-shipment of pirated intellectual property goods
(including software, clothing and footwear apparel, sporting equipment,
toys, music recordings, videos, DVDs, etc.), as well as other threats to the
enforcement of intellectual property rights (IPR) and customs laws in the
NAFTA region.109 The study provides an assessment of prevailing conditions
in the NAFTA member countries as well as suggestions and recommenda-
tions on ways to combat trans-shipment, including improved enforcement of
IPR and customs laws. The publication also identifies existing customs and
IP laws, regulations, and case law that apply, and examines how those are
implemented (or not) in practice, including their strengths and weaknesses,
as well as the extent of private sector involvement.
Carolita Oliveros and Andre Jaglom assert the need for Intellectual
Property and Patent Law harmonization in North America to combat the
bureaucratic inefficiencies that businesses must navigate when applying for
a patent or trademark in Canada and the United States.110 The authors do,
however, acknowledge that a business can file an “international patent appli-
cation under the ‘Patent Cooperation Treaty’ and thereby simultaneously seek
protection for an invention in each of a large number of countries, including
the members of the North American region.”111
Stephen Zamora recalls the history of the harmonization of Mexican and
American Intellectual Property laws, which began in 1991 with the Mexican
Industrial Property Law. This law “eliminates the vast majority of problems
cited by US industries relating to patents, copyrights and trademarks.”112
According to Zamora, these reforms of Mexican law mean that the obliga-
tions set forth in NAFTA Chapter 17 on intellectual property, copyright,
trademark, and patent protection did not require additional significant legal
reforms in Mexico.113
Edgardo Buscaglia espouses the success of NAFTA’s IP protection under

Chapter 17 and argues that for future multilateral and regional agreements,
“NAFTA’s standards (rather than those of TRIPs), will likely be the model
on which a hemisphere-wide free-trade area is based.”114 Further, Buscaglia
touches on the motivation for developing countries, like Mexico, to harmo-
nize their laws with their more developed trading partners: “When developing
countries make the policy decision to adopt an export driven approach to eco-
nomic growth, the urgent need to attract foreign high-tech capital coupled
with the required flows of information-intensive capital imported goods will
provide the incentive to improve intellectual property protection by making
legal standards more compatible with the WTO and NAFTA’s standards.”115
Ysolde Gendreau takes a comparative look at the IP law harmonization
efforts in both Europe and North America, and identifies distinguishing fac-
tors that she then attributes to the differing objectives of the two institutions
and predicts a greater degree of success for the EU model of harmonization
due to its particularity.116
Criminal Law
William Burke-White presents the argument for regional enforcement of
criminal laws highlighting the importance of possibilities for softer forms
of regionalization within already existing enforcement mechanisms. Accord-
ing to Burke-White, his work is a “call for greater consideration of regional
criminal justice and an argument that a softer form of regionalism, primar-
ily through existing mechanisms, is relatively easy to achieve and could offer
powerful normative benefits.”117 He goes on to discuss the role of permanent
institutions for the enforcement of international criminal law and the bene-
fits of regionalizing criminal law such as less political malleability and reduced
financial costs. Of course, there are serious sovereignty and political concerns
with any notion of a supranational judiciary, and any effort to harmonize
North American criminal enforcement is likely to receive stiff opposition.
Forum Selection/Choice of Law

According to Michael Wallace Gordon, “the question of which law applies
becomes less important as the laws are harmonized” and as such a “contract
issue between parties in Mexico and the United States initially thought to
raise a choice of law issue may raise a ‘false conflict’—the rule will be the
same under either Mexican or United States law.”118
H. Patrick Glenn adds that where “mandatory local rules exist . . . they
may frequently be found not to be mandatory for cross-border transactions,
further extending the zones of conflict-free party choice of law.”119 He fur-

ther argues that a sign of North American legal harmonization is that “judges
do not apply choice of law rules on their own initiative, but only where
foreign law is pleaded by a party. Harmony of laws is thus presumed and
time and money is not spent on the second-order questions of choice of law
unless it makes a difference to the parties.”120 He also adds that an informal
instrument such as the UNIDROIT Principles for International Commercial
Contracts can be seen as “a guide to objective, international standards and
play a mutually supportive role with the law of the Americas.”121
Robert Kossick emphasizes the importance of strong forum selection
clauses. “Where disputes between US and Mexican parties lead to the filing of
an action in Mexico—either by operation of a valid forum selection clause or
other wise—it is usually the best interest of the US party to either arbitrate or
mediate a settlement. Because the common law doctrine of forum non conve-
niens does not exist in Mexico, failure to resolve the dispute by extra-judicial
means will leave the U.S. party with no option but to litigate in Mexican
courts.”122
Immigration Laws
Frederic Moll calls for the harmonization of American and Canadian immi-
gration laws in the interest of creating a secure North American security
perimeter.123 Moll describes three cases where Canadian citizens were unjustly
detained and held in the United States for illegally entering the country (one
individual was arrested for entering Maine while he was pumping gas; the
pumps were in Maine but the entrance to the station is in Quebec) and argues
that a common security perimeter, a component of which is a harmonized
immigration system, would allow citizens of North America to move freely
across borders while strengthening resistance of a threat from abroad.124
Laura Spitz argues that, in North America, “the problems created by
the unrestricted flow of capital across national borders are hugely exac-
erbated by the corresponding immobility of people.”125 “Elimination or
reform of North American immigration barriers not only advances substan-
tive equality, but may make good economic sense as well . . . the experience
of the European Community shows that restricting human mobility disrupts
market operation.”126
Of course, the issue of immigration, specifically illegal immigration from
Mexico, is front-page news in the United States, and, if anything, all signs
point to a retreat from more fluid mobility for workers across North American
borders. It may be possible to frame the issue of the harmonization of immi-
gration laws in a way that appeals to both sides of the immigration fence, but
doing so requires a deep understanding of the nuances of the political debate

in the United States.
Labor
Craig Jackson compares the labor laws in the European Union and North
America in the interest of determining whether the EU’s approach should
act as a model for North American labor law harmonization.127 According to
Jackson, harmonization is a rational way to deal with the problem of capi-
tal and job flight by equalizing costs across borders. Harmonization removes
the incentive to “take the money and run” on the part of companies of one
party.128 Jackson argues that there are three possible means of labor law har-
monization: first, EU-style harmonization with binding standards utilizing
the doctrine of direct effect or requiring implementing legislation, making
such standards self-executing; second, the incorporation of international labor
standards as a common foundation of oversight; and finally, a modification
of the system in place under the North American Agreement on Labour
Cooperation.129
Facilitators of Harmonization
If indeed the harmonization of laws in North America is to be successful, it
will in large part be as a result of support from international organizations.
Some also argue that North American institutions need also be established to
develop and govern harmonization.
International Organizations
Mistelis provides a good overview of the primary actors in global harmoniza-
tion. He discusses international organizations such as the UNCITRAL,130
the International Institute for the Unification of Private Law (UNDROIT),
the Hague Conference on Private International Law, and the World Trade
Organization (WTO), which use both hard and soft law means of har-
monization as discussed earlier in this chapter.131 Regional international
economic integration organizations also contribute to the harmonization
of law including ASEAN, EC, MERCOSUR, OAS, and the Organization
for African Unity (OAU).132 A number of nongovernmental international
mercantile organizations or professional associations also attempt to harmo-
nize commercial law including the ICC, the International Law Association
(ILA), the International Bar Association (IBA), and the Comite Maritime
International (CMI).133 These organizations often “promulgate model laws,
model rules, standard contracts, or draft conventions.”134 Finally, several other

international organizations, such as the World Bank, the European Bank for
Reconstruction and Development (EBRD), and the International Monetary
Fund (IMF), demonstrated in a number of endeavors their interest in being
involved in the lawmaking process or at least in the standard setting.
North American Institutions

Unlike those of the EU, the architects of NAFTA intentionally opted for
a free trade agreement, rather than a customs union, and this choice had a
substantial impact on the legal institutions that were created and the legal
harmonization that resulted. There are two arguments with respect to the
role institutions will play in the harmonization of North American law.
On one side, Patrick Glenn argues that “harmonization of private inter-
national law rules in the NAFTA countries has occurred through voluntary
change—not imposed by a supranational organization—but spontaneously
by independent national institutions, in order to respond to the NAFTA envi-
ronment. In order to be in harmony, changes are made, but they are sponta-
neous and voluntary rather than imposed.”135 As a result, “the development
of an international private law of contract may thus be a highly informal prac-
tice, based on a slow process of recognition of best practices.”136 He argues
that a needs-driven, pragmatic process, where particular subjects and particu-
lar needs of harmonization are identified, is “preferable to the creation of any
permanent Inter-American law reform agency.”137 “The ‘institutional mea-
greness’ of NAFTA may . . . be seen as an indication of continuing faith in the
adaptability of federal structures and in informal process of harmonization,
and not simply as hostility or indifference to NAFTA objectives.”138
Glenn does support, however, an increased role for nongovernmental
organizations in lieu of formal permanent institutions. “In the Americas
there appears to be a clear role for the OAS in the development of [sic]
legal instruments, either through the encouragement of industry-specific, and
industry-articulated codes of conduct, or through more direct sponsorship of
model laws or Restatement-like documents. The latter may also constitute, in
some measure, ‘prestatements’ of what the law should be.”139 These prestate-
ments are sufficiently flexible to allow for future development, and their
persuasive character allows states to proceed at different rates of adherence.140
On the other hand, there are those who argue that North American legal
harmonization must occur with the support of formal institutions. Marise
Cremona looks to the European system observing in the European context
that “the creation of a dynamic system of law requires an institutional struc-
ture with decision-making powers, able to react to changing needs.”141 Noemi
Gal-Or also calls for an increase in institutions under NAFTA to provide the
private party with greater access to NAFTA mechanisms; she argues that pri-
vate parties currently don’t have access and are therefore subrogated below the
state.142
According to John Fitzpatrick, when discussing legal harmonization in
North America, “three basic institutions with corresponding essential pow-
ers can be identified. These include: a decision-making mechanism created
principally to facilitate legal harmonization and unification; a monitoring
institution which provides surveillance and enforcement; and a judicial organ
which ensures dispute resolution, uniform interpretation, and enforcement of
substantive law.”143 Fitzpatrick defends the need for these institutions: “First,
supranational courts are necessary for the settlement of disputes between con-
tracting states concerning the substantive law of the regional area. Second,
regional courts serve as a mechanism for insuring the uniform interpretation
of regional law. Third, through dispute resolution and interpretation, regional
courts apply and enforce regional norms.”144
Several authors have proposed specific institutions to facilitate harmoniza-
tion of law in North America. Again, it is important to recall that the purpose
of this chapter is to provide a broad overview of the landscape covering the
potential for North American legal harmonization. As with the general con-
cept of legal harmonization, the establishment of supranational institutions is
highly controversial and, for purposes of this chapter, is neither condoned nor
rejected. A selection of these proposed institutions are listed in the following
sections.
North American Trade Tribunal (Appellate Tribunal)

In a 1992 Report and Recommendation to the House of Delegates, the
American Bar Association (ABA), Section of International Law, called for
the establishment of a permanent dispute resolution institution.145 “What is
essential here is there be constituted a permanent institution that can be called
upon to deal promptly with interpretive issues whenever they arise . . . with
jurisdiction with respect to disputes involving the interpretation and applica-
tion of the North American Free Trade Agreement.”146 Further, the working
group found it to be desirable for the “North American Trade Tribunal to be
given power, upon request, to provide an opinion to a domestic court on the
interpretation of particular provisions of the Agreement.”147 The negotiators
found the institution undesirable or politically damaging, and it was never
established.148
Fitzpatrick echoes the call of the ABA for a North American Appellate
Tribunal. For Fitzpatrick, such a tribunal, “with the authority to hear appeals
from panel decisions pursuant to the various NAFTA and side agreement
dispute resolution mechanisms, would facilitate uniformity and coherence in
the interpretation of regional norms . . . a tribunal of this nature could deliver
binding opinions in the international sense without offending the sovereignty
of national courts.”149 “A NAFTA Appellate Tribunal could also ‘provide an
opinion to a domestic court on the interpretation of particular provisions of
the agreement’ upon request.”150
North American Charter of Fundamental Rights

Laura Spitz presents the concept of a North American Charter of Funda-
mental Rights in which the governments of Canada, Mexico, and the United
States commit to a document that says “this is what we provisionally envi-
sion for ourselves, and this is what matters for us as an interdependent
community.”151 According to Spitz, “A North American Social Charter has
the potential to reassert governmental sovereignty over corporate sovereignty,
protect already achieved rights, introduce and enhance new rights shape the
debate, and give us a coherent vision—or capital-P Plan—for our evolving
North American community.”152 For Spitz, the North American Social Char-
ter would broadly state and guarantee “those rights and freedoms integral
to human flourishing.”153 A “hopeful result” of the “North American Char-
ter would be that people no longer need to move to acquire additional or
different social rights and freedoms.”154
North American Bankruptcy Agreement

David Cook explores the possibility of creating a North American
Bankruptcy Agreement (NABA) in response to the inadequacy of the current
laws to effectively resolve international insolvency problems.155 Cook details
his plan for an NABA, which he presents not as a uniform bankruptcy code
or comprehensive choice of law scheme but, rather, achieves the goals of clar-
ity in the law as well as international cooperation a more nuanced agreement
that achieves the goals.156 Three elements of Cook’s NABA include an auto-
matic stay requirement (all proceedings against the debtor are stayed once
the debtor files for bankruptcy in any nation), the automatic stay is in effect
as long as the parties are engaged in good faith, private negotiations toward
reaching a settlement, and an interest party may request resolution of a dis-
pute by an arbitral panel and all panel decisions are binding on all parties.157
Sean Dargan supports David Cook’s proposal for an NABA, but is con-
cerned the “reality of the historical, political, legal, linguistic and social ties”
suggests that Canada and the United States are more likely to enter into treaty
with each other, rather to expose their citizens and corporations to Mexico
and its unpredictable Ley de Quiebras y Suspension do Pagos (L.Q.S.P.).158
Rather, Dargan believes the Concordat, discussed earlier in this chapter, is a
more pragmatic approach to transnational insolvency in North America and
stands a better chance of acceptance.159
Conclusion
Any discussion of North American legal harmonization exists in a complex
political and cultural environment. One element not discussed in this chapter
is the public perception of North American integration, whether it be legal,
cultural, or economic. Robert Pastor in Towards a North American Community
tackles the challenges of integration and concludes that the public is in fact
on the side of integration and that it is now up to the leaders of the three
countries to lead the way.160 According to Pastor, in North America, “the
underlying basis of a community exists. Provided people are not threatened by
a loss of culture or identity, and incentives for productivity and improvements
for standard of living are evident, the three peoples are ready to listen to ideas
on how to combine in order to accomplish those ends.”161
Although there are certainly obstacles in the path of progress, namely,
the diverse legal traditions and varying federalist sentiment, there is also
evidence that with strong leadership and an honest conveyance of the bene-
fits of harmonization to the people of North America, the obstacles to legal
harmonization may be less imposing.
What cannot be predicted with any degree of accuracy is the answer to
when North American legal harmonization will occur. Some harmonization
will invariably occur on its own, in the next several years, as corporations and
industries act to reduce redundancies and cost-ineffective regulatory environ-
ments. Other sectors will no doubt take much longer. Culturally, the three
countries, though converging, remain polarized on several key topics, and as
such certain “sensitive” areas of the law such as the death penalty, abortion,
and gay marriage might well take much longer to harmonize.
Given the sensitivity of legal harmonization in North America, the intent
of this chapter has been to identify the obvious obstacles and encouragements
of progress toward legal harmonization. Much more literature exists that was
not covered, and indeed much has changed since this effort was originally
undertaken in 2006, but it is the hope of the author that this chapter will pro-
vide those with an interest in analyzing the pros and cons of North American
legal harmonization with a general snapshot of the literature that exists and
the discussion it has generated.
Notes
1. Frederick M. Abbott, Integration without Institutions: The NAFTA Mutation of
the EC Model and the Future of the GATT Regime, 40 Am. J. of Comp. L. 917
(1992) at 928.
2. Stephen Zamora, NAFTA and the Harmonization of Domestic Legal Systems: The
Side Effects of Free Trade, 12 Ariz. J. Int’l & Comp. L. 401 (1995) at 404.
3. Laura Spitz, The Gift of Enron: An Opportunity to Talk About Capitalism,
Equality, Globalization, and the Promise of a North American Charter of Fun-
damental Rights, 66 Ohio St. L. J. 315 (2005) at 338.
4. Id. at 338.
5. H. Patrick Glenn, Harmony of Laws in the Americas, 34 U. Miami Inter-Am.
L. Rev. 223 (2003) at 232.
6. Id. at 246.
7. Loukas A. Mistelis, Regulatory Aspects: Globalization, Harmonization, Legal
Transplants, and Law Reform—Some Fundamental Observations, 34 Int’l Law.
1055 (2000) at 1061.
8. Id.
9. Id.
10. Andrew J. Walker, Conflict of Laws Analysis for the Era of Free Trade, 20 Am.
U. Int’l L. Rev. 1147 (2005) at n.16.
11. Kurt H. Nadelmann, Ignored State Interests: The Federal Government and Inter-
national Efforts to Unify Rules of Private Law, 102 U. Pa. L. Rev. 323 (1954)
at 323.
12. Id. at 323–24.
13. Id. at 324.
14. Id. at 325.
15. Id. at 329.
16. Id. at 330.
17. Id. at 331–32.
18. Jose A. Cabranes, The Inter-American System: Its Development and Strength-
ening, Oceana Publications, Book Review, 16 Int’l & Comp. L. Qt. 563
(1967).
19. Nadelmann supra note 12 at 335. See Also James Brown Scott, The Gradual and
Progressive Codification of International Law, 21 Am. J. of Int’l L. 417 (1927)
(detailing the evolution of private international law in the Americas).
20. See Enrique Lagos, The Coexistence of Legal Systems in the Americas from
and OAS Perspective, Paper presented at the University of Ottawa, October 20,
2000, during a panel on “Evolution des Systemes Juridiques et Mondialisation.”
(“Antonio S. de Bustamante was a well-respected Cuban jurist who prepared
a code of private international law for the Americas. He did so through the
mechanisms of the Congress of Jurists and the Sixth International Conference
of American States in Havana in 1928. The Congress was composed of two
delegates from each state in the Hemisphere, and can be considered a forerunner
or predecessor of the present Inter-American Juridical Committee. In 1928, the

international conference adopted the Bustamante Code. It was considered one
of the most ambitious instruments in the area of private international law, but
despite years being devoted to developing this code, many countries, including
the United States, never signed the applicable treaty. Bustamante Code, there-
fore, is considered a failure for its inability to harmonize the laws of the different
countries and, in particular, of the two principal legal systems in the Western
Hemisphere”).
21. Nadelmann supra note at 335.
22. C. G. Fenwick, The Inter-American Institute for International Legal Studies, 58
Am. J. Int’l L. 122 (1964) at 125.
23. Stephen Zamora, NAFTA and the Harmonization of Domestic Legal Systems: The
Side Effects of Free Trade, 12 Ariz. J. Int’l & Comp. L. 401 (1995) at 406.
24. Id.
25. Id.
26. Id. at 407.
27. Supra note 6 at 237.
28. See A. Kocourek, Sources of Law in the United States of North America and Their
Relation to Each Other, 18 A.B.A. J. 676 (1932) (providing a historical overview
of the history of U.S. law from colonialism to the 1930s).
29. Stephen Zamora, The Americanization of Mexican Law: Non-Trade Issues in the
North American Free Trade Agreement, 24 Law & Pol’y Int’l Bus. 391 (1993)
at 446.
30. Id.
31. Stephen Zamora, Allocating Legislative Competence in the Americas: The Early
Experience under NAFTA and the Challenge of Hemispheric Integration, 19 Hous.
J. Intl’l L 617 (1997) at 620–21.
32. Enrique Lagos, The Coexistence of Legal Systems in the Americas from
and OAS Perspective, Paper presented at the University of Ottawa,
October 20, 2000, during a panel on “Evolution des Systemes Juridiques et
Mondialisation.”
33. Jorge A. Vargas, An Introductory Lesson to Mexican Law: From Constitutions and
Codes to Legal Culture and NAFTA, 41 San Diego L. Rev. 1337 (2004) at 1366.
34. Id. at 1370–71.
35. Id. at 1367.
36. Casey Burgess, Comment, An Anglo-NAFTA Union: Does It Make Sense?,
8-FALL L. & Bus. Rev. Am. 685 (2002) at 698.
37. Black’s Law Dictionary (8th ed. 2004), federalism.
38. H. Patrick Glenn, North America as a Medieval Legal Construction
(2001), p. 3.
39. Id at pp. 3–4.
40. James T. McHugh, “North American Federalism and Its Legal Implications,” 4
Nortéamerica, no. 1 (2009), 55–83.
41. Zamora supra note 24 at 409.
42. Id.
43. Id.
45. Id.
47. Patricia Isela Hansen, Judicialization and Globalization in the North American
Free Trade Agreement, 38 Tex. Int’l L.J. 489 (2003) at 493.
48. H. Patrick Glenn, North America as a Medieval Legal Construction, 2 Global
Jurist Adv. (2002) at 8.
49. Id. at 9
50. Id.
51. Id. (citing Morguard Investments Ltd. v. De Savoye (1990), 3 S.C.R. 1077, 76
D.L.R. (4th) 256).
52. Luis Rubio, Mas Alla del Tratado, La Jornada (Mexico City), September 26,
1992, at 10 (translation by Stephen Zamora in The Americanization of Mexican
Law: Non-Trade Issues in the North American Free Trade Agreement, 24 Law &
Pol’y Int’l Bus. 391 (1993) at 457.
53. H. Patrick Glenn, Conflicting Laws in a Common Market? The NAFTA Experi-
ment, 76 Chi.-Kent L. Rev. 1789 (2001) at 1793.
U. Int’l L. Rev. 1147 (2005) at 1148.
55. Glenn supra note 53 at 1795.
56. Cf. Adreas F. Lowenfeld, Binational Dispute Settlement Under Chapter 19
of the Canada-United States Free Trade Agreement: An Interim Appraisal, 24
N.Y.U. J. Int’l & Pol. 269 (1991) (providing an overview of the predecessor
to NAFTA, the Canada-U.S. Free Trade Agreement, and its dispute resolution
mechanisms on which much of the NAFTA was premised).
57. Gary Clyde Hufbauer, Institute for International Economics, Remarks at the
annual policy conference of the Canadian Association for Business Economics,
Washington, D.C., March 30, 2001.
58. See Eric J. Pan, Assessing the NAFTA Chapter 19 Binational Panel System:
An Experiment in International Adjudication, 40 Harv. Int’l L. J. 379 (1999)
(providing an assessment and overview of Chapter 19); Cf. Homer E Moyer,
Chapter 19 of the NAFTA: Binational Panels as the Trade Courts of Last Resort, 27
Int’l Law. 707 (1993) (The constitutionality of the NAFTA dispute resolution
mechanisms, Chapter 19 in particular, has been challenged several times. This
article by Homer Moyer provides a good reflection of the argument that the
chapter presents no constitutional concerns.).
59. Gary Clyde Hufbauer, Institute for International Economics, Remarks at the
Washington, D.C., March 30, 2001.
60. Id.
61. Id.
62. Id.
63. Patricia Isela Hansen, Judicialization and Globalization in the North American
Free Trade Agreement, 38 Tex. Int’l L.J. 489 (2003) at 493.
64. Angel R. Oquendo, The Comparative and the Critical Perspective in International
Agreements, 15 UCLA Pac. Basin L.J. 205 (1997).
65. Id. at 239.
66. Id. at 240.
67. Id. at 254.
68. Angel R. Oquendo, NAFTA’s Procedural Narrow Mindedness: The Panel Review
of Antidumping and Countervailing Duty Determinations Under Chapter Nine-
teen, 11 Conn. J. Int’l L. 61 (1995) at 62.
69. Julie Mertus and Elizabeth Breier-Sharlow, Power, Legal Transplants and Harmo-
nization, 81 U. Det. Mercy L. Rev. 477 (2004).
70. Id. at 485.
71. Id.
72. Robert A. Pastor, Toward a North American Community, Institute for Interna-
tional Economics (Washington, D.C.: 2001) at 190.
U. Int’l L. Rev. 1147 (2005) at 1152–53.
74. Id. at n. 13. Walker is referencing Noemi Gal-Or, Private Party Direct Access:
A Comparison of the NAFTA and the EU Disciplines, 21 B.C. Int’l & Comp. L.
Rev. 2, 5–8 (1998) (characterizing NAFTA as being “many steps behind the EU
example” because it does not allow private parties direct access to supranational
authorities).
75. John P. Fitzpatrick, The Future of the North American Free Trade Agreement:
A Comparative Analysis of the Role of Regional Economic Institutions and the Har-
monization of Law in North America and Western Europe, 19 Hous. J. Int’l L. 1
(1996) at 8.
76. Supra note 6 at 225–26.
77. Id. at 232.
78. Id. at 232. A deeper discussion of the institutions required to accomplish North
American legal harmonization can be found in part 7 of this review.
79. Id. at 229.
80. United States Department of State, European Union Profile, Fact Sheet: Bureau
of European and Eurasian Affairs, Washington, D.C., May 25, 2006 http://
www.state.gov/p/eur/rls/fs/115211.htm visited 7/1/2006.
81. Id.
82. Id.
83. Id.
84. Id.
85. Anne-Marie Burley and Walter Mattli, Europe Before the Court: A Political
Theory of Regional Integration, 47 Int’l Org. 41 (1993) at 65.
86. Geoffrey Garrett et al., The European Court of Justice, National Governments,
and Legal Integration in the European Union, 52 Int’l Org. 149 (1998) at 150.
87. Id.
88. Cf. David M. Trubek et al., Global Restructuring and the Law: Studies of the
Internationalization of Legal Fields and the Creation of Transnational Arenas, 44
Case W. Res. L. Rev. 407 (1994) at 410 (arguing the legal profession is a valuable
indicator of the impact of economic integration and global forces: “Forces and
logics that can be observed in the economy, the state, and the international
order are at work within the legal field as well, so that the logic of the legal field
constitutes a ‘homologous microcosm’ of larger social phenomena”).
89. See Glenn 2001 for a discussion of the large firms and how they hire lawyers
from the other two countries in North America.
90. Supra note 6 at 237–38 (citing R. Goode, International Restatements and
National Law, in the Search for Principle [:] Essays in Honour of Lord Goff of
Chievely (W. Swadling & G. Jones ed., Oxford 1999) at 57.
92. R. Buxbaum and K. Hopt, Legal Harmonization and the Business Enterprise
(Walter de Gruyter ed., 1988) at 271.
93. Harry W. Arthurs and Robert Kreklewich, Law, Legal Institutions, and the Legal
Profession in the New Economy, 34 Osgoode Hall L. J. 1 (1996).
94. Laura Spitz, At the Intersection of North American Free Trade and Same Sex
Marriage, 9 UCLA J. Int’l L. & Foreign Aff. 163 (2004) at 186.
95. Id. at 188.
96. Jay Lawrence Westbrook, A Global Solution to Multinational Default, 98
Mich. L. Rev. 2276 (2000) at 2238.
97. John Pottow, Procedural Incrementalism: A Model for International Bankruptcy,
45 VAJIL 935 (2006); See also Sandile Khumalo, International Response to
the UNCITRAL Model on Cross-Border Insolvency, International Insolvency
Institute, 2004, www.iiiglobal.org, July 1, 2006.
98. The Concordat was used by a U.S. Bankruptcy Court in In re Everfresh Bever-
ages et al v. Charterhouse Group International, Inc. et al., 238 B.R. 558 (1999).
For more information on the Concordat, see Anne Nielsen et al., The Cross
Border Insolvency Concordat: Principles to Facilitate the Resolution of International
Insolvencies, 70 Am. Bankr. L. J. 533 (1996).
99. International Bar Association, Cross-Border Insolvency Concordat, downloaded
from the International Insolvency Institute, www.iiiglobal.org, June 5,
2006.
100. Leslie A. Burton, Toward an International Bankruptcy Policy in Europe: Four
Decades in Search of a Treaty, 5 Ann. Surv. Int’l & Comp. L. 205 (1999)
at 236.
101. David C. Cook, Prospects for a North American Bankruptcy Agreement, 2 Sw. J.L.
& Trade Am. 81 (1995) at 95.
102. Dean Dargan, COMMENT, The Emergence of Mechanisms for Cross Border
Insolvencies in Canadian Law, 17 Conn. J. Int’l L. 107 (2001) at 5.
103. Michael Traynor, Conflict of Laws, Comparative Law, and the American Law
Institute, 49 Am. J. of Comp. Law 391 (2001) at 402.
104. Federal Judicial Center, International Insolvency, 2001.
105. Emilie Beavers, Note, Bankruptcy Law Harmonization in the NAFTA Countries:
The Case of the United States and Mexico, 2003 Colum. Bus. L. Rev. 9565 (2003)
at 966.
106. Id.
107. Jay Lawrence Westbrook, Creating International Insolvency Law, 70 Am. Bankr.
L.J. 563 (1996) at 565.
108. Id. at 574.
109. National Law Center for Inter-American Free Trade, Transshipment and Other
Threats to the Enforcement of Intellectual Property Rights in Canada and Mexico
(2004). The entire review of this study is taken from the NLCIFT’s website at
http://natlaw.com/pubs/purchase/intellpro.htm, accessed on June 24, 2006.
110. Carolita L. Oliveros and Andre R. Jaglom, International Distribution Issues:
Contract Materials: Options for Developing a Foreign Market, SK068 ALI-
ABA 851, (2005) at 992.
111. Id. at 993.
112. Stephen Zamora, The Americanization of Mexican Law: Non-Trade Issues in the
North American Free Trade Agreement, 24 Law & Pol’y Int’l Bus. 391 (1993) at
416 (quoting Gary C. Hufbauer & Jeffery J. Schott, North American Free Trade:
Issues and Recommendations 185 (1992).
113. Id.
114. Edgardo Buscaglia, Intellectual Property Rights and Business Investment in Less
Developed Countries, Paper presented at “Conference on Vietnam in 2001:
Prospects for Economic and Social Progress,” Washington, D.C., November
16–17, 2001.
115. Id.
116. Ysolde Gendreau, Copyright Harmonization in the European Union and in North
America, 20 Colum.-VLA J. L. & Arts 37 (1995–1996).
117. William W. Burke-White, Regionalization of International Criminal Law
Enforcement: A Preliminary Exploration, 38 Tex. Int’l L.J. 729 (2003) at 731.
118. Michael Wallace Gordon, Economic Integration in North America: An Agreement
of Limited Dimensions but Unlimited Expectations, 56 Mod. L. Rev. 157 (1993)
at 169.
120. Id.
122. Robert M. Kossick, Jr., Litigation in the United States and Mexico: A Comparative
Overview, 31 U. Miami Inter-Am. L. Rev. 23 (2000) at 24.
123. Frederic J. Moll, The Legal & Technological Advantages of a North American
Perimeter in the War Against Terrorism: How the Implementation of a Schengen-
Type System Will Best Serve the Security Interests of the United States and Canada,
204 Syracuse Sci. & Tech. L. Rep. 2 (2004).
124. Id.
126. Id. at 372.

127. Craig L. Jackson, Social Policy Harmonization and Worker Rights in the European
Union: A Model for North America?, 21 N.C.J. Int’l L. & Com. Reg. 1 (1995–
1996).
128. Id. at 62.
129. Id.
130. See Jose Angelo Estrella Faria, The Relationship Between Formulating Agencies in
International Legal Harmonization: Competition, Cooperation, or Peaceful Coex-
istence?, 51 Loy. L. Rev. 253 (2005) (summarizing the activities of UNCITRAL
and providing an excellent overview of the issues the organization faces in its
efforts to harmonize international law).
131. Loukas A. Mistelis, Regulatory Aspects: Globalization, Harmonization, Legal
Transplants, and Law Reform—Some Fundamental Observations, 34 Int’l Law.
1055 (2000) at 1062.
132. Id.
133. Id.
134. Id.
135. H. Patrick Glenn, Conflicting Laws in a Common Market? The NAFTA Experi-
ment, 76 Chi.-Kent L. Rev. 1789 (2001) at 1799.
136. Supra note 6 at 241
137. Id. at 245–46.
138. H. Patrick Glenn, Conciliation of Laws in the NAFTA Countries, 60 La. L. Rev.
1103 (2000) at 1105.
140. Id.
141. Marise Cremona, The ‘Dynamic and Homogeneous’ EEA: Byzantine Structures
and Variable Geometry, 19 EUR. L Rev. 508 (1994) at 509.
142. Noemi Gal-Or, Private Party Direct Access: A Comparison of the NAFTA and the
EU Disciplines, 21 B.C. Int’l & Comp. L. Rev. 1 (1998).
145. American Bar Association: Section of International Law, Section Recommen-
dation and Report: Dispute Settlement Under a North American Free Trade
Agreement, 26 Int’l Law 855 (1992).
146. Id.
147. Id.
149. Id. at 92.
150. Id. (citing Henry T. King, Jr., et al., Dispute Settlement Under the North
American Free Trade Agreement, reprinted in 26 Int’l L. 855 (1992) at 863).
152. Id. at 396.
153. Id. at 328.
154. Id. at 373.

156. Id. 119.
157. Id. 120.
159. Id. at 120.
160. Supra note 73 at 189. Also, see Robert A. Pastor, “The Future of North
America,” Foreign Affairs 87, no. 4 (July/August 2008).
161. Id. at 164.
CHAPTER 2
How to Think About Law in North

America
H. Patrick Glenn
H
ow should we think about law in North America? Even formulat-
ing the question is difficult. Should there be, for example, a comma
after the word law, which would direct our attention to jurispru-
dential reflection about the nature of law that has (perhaps fortuitously)
occurred in North America? There have been distinguished North American
legal philosophers. Or perhaps the question would be better phrased in terms
of how we should think about “North American law.” This would suggest,
though ambiguously, a more unified concept, one of practical and not merely
theoretical interest, and a law that could apply, more or less consistently, from
the high Arctic to the southern borders of Mexico, and Chiapas. In a similar
manner, there is discussion today of “European law.” So the question of how
to think about “law in North America” is, like many questions, already sug-
gestive of an answer, and it is this answer that this chapter defends. We should
be thinking about law in North America in terms of different and varied
manifestations of law, of both state and nonstate origin, which are capable of
nonconflictual coexistence, such that North America, with its many advan-
tages, can play a leading role and constitute a major model in the world, of
mutual legal understanding and the conciliation of different laws.
The question asked by the title of the conference giving rise to this vol-
ume on this subject was, however, different again, in speaking of “A North
American Legal System” and asking “Is It Possible? Desirable?” I have to say
that my answer to both of these questions is “no,” even surtout pas, but in an
attempt to avoid any impression of negativity I add, borrowing from Stanley
Fish, “and it’s a good thing too.”1 There are many reasons for not thinking

40 ● H. Patrick Glenn
about law in North America in terms of a legal system, or even in terms of

legal systems, but they all come with obvious alternatives, alternatives that
may be seen as having greater explanatory and normative force than the con-
cept of a legal system. I should add, however, that I am speaking only of the
foreseeable future, say the next three or four hundred years, and that nothing
I say should be taken as precluding any eventual North American legal system,
if the circumstances eventually, though improbably, come to be appropriate
for it. For the moment, however, there are reasons for not endorsing the idea.
Why We Should Not Think of a North American Legal System

There are at least four reasons why we should not be thinking of a North
American legal system. They relate to the concept of a legal system, to existing
institutions in North America, to the relations between North America and
the world, and to minority populations in North America.
The Concept of a Legal System

Much effort has been expended in the effort to define a legal system, but
without success. We are in the presence of an “essentially contested con-
cept,”2 understandable only in terms of its different historical understandings.
Of these historical understandings, the most well known is perhaps that of
positivist legal philosophers, such as Hart or Raz, for whom a legal system
is characterized by “a certain kind of supremacy within its territory and inde-
pendence of other systems.”3 In the context of North America, this type of
construction appears presently both impossible and undesirable, for reasons
that will be seen, but for present purposes, this concept of a legal system can
at least be seen as providing a kind of normative payload. If constructed, there
would be consequences. Yet this definition of a system is only one of many,
and given its incompatibility with other than formal, positive definitions of
law, it is now paralleled by flexible, informal notions of what constitutes a
system, which appear more as simple descriptions of life lacking in norma-
tive purchase. This is the type of thought underlying notions of “autopoietic
systems”4 or “networks of processes.”5 Here hierarchies become flattened and
the notion of system is expressly acknowledged to be able to accommodate
the most “strategic, innovative or rebellious choice-making”6 or even catastro-
phe.7 The notion of system thus approaches that of culture, criticized recently
as “failing to identify any particular factors that could be seen to be making
a difference.”8 There would, with this concept of a legal system, be no point
to it, other than distinguishing North America, in its totality, from all other
legal “systems” of the world.
How to Think About Law in North America ● 41
So it is difficult to think about a North American legal system because we

cannot know what this means, and it might mean anything from construction
of a North American legislature, executive, and judiciary to North America as
we know it, today, converted by a wave of the sociologist’s wand into a system
with infinite possibilities of variation between two radical alternatives. But
here are other, more precise reasons for avoiding the concept of a legal system,
or at least a legal system of normative purchase, one that would involve a
significant departure from existing institutions.
A North American Legal System and Existing Institutions in

North America
Existing institutions in North America are characterized by their variety and
by their internal diversity. We have Congressional and Parliamentary sys-
tems, federalized and unitary court structures, elected judges and appointed
judges, regulated and less regulated legal professions, civil and common laws,
adversarial and investigative civil and criminal procedure, judicial review of
varying breadth (Mexico’s Otero formula yields judgments of only res judicata
effect),9 and written and unwritten laws (of aboriginal or chthonic peoples).
To this variety is added the inherent diversity of state structures that are fed-
eral or confederal in character (Canada may be seen as either), such that
nowhere in North America is there a legislature sovereign in all fields of law
and nowhere in America is legislative enactment immune from constitutional
challenge.
All of this contrasts remarkably with the European Common Market at
its inception, composed entirely of civil law jurisdictions, almost entirely of
unitary states (Germany is a federation but with unified private law), and
relatively little judicial review. So the concept of a unified legal system, in
the Hartian sense, with a sovereign legislative authority, was and is a cur-
rent one in continental Europe, and much EU activity has been driven by
an underlying idea of legal uniformity founded on a corpus of preestab-
lished rules (though yielding eventually to a slightly less rigorous idea of
legal harmonization). Unifying the law of the six original jurisdictions of the
European Common Market thus appeared both as a necessity (to overcome
existing and absolute sovereignties) and as a plausible option. Unifying or
even harmonizing the law of some 90-odd jurisdictions of North America is a
qualitatively different proposition, though the existence of only three official
languages (one dominant) greatly facilitates communication among them.
In the enlarged Europe, moreover, there is now a newer language of “vari-
able geometry,” “multi-speed” harmonization, “enhanced collaboration,” and
“differentiated integration.”10
North American institutions are thus varied, and live in a context of

ongoing diversity. This has become more, not less, evident in recent years.
In his Washington Diaries, Alan Gotlieb vividly illustrates both the polycentric
character of authority and power in Washington (“this decentralized town”)
and the need for working outside and beyond any formal hierarchies (“we
have to develop contacts and relationships with the domestic agencies them-
selves . . . we have to ally ourselves with friendly U.S. domestic interests”).11
The practice developed by this Canadian ambassador, in North America in
the 1980s, thus coincided with the emergence of the notion of “transgovern-
mentalism” in regime theory and public international law, the contemporary
practice in the world of getting things done through operative, transnational
linkages at appropriate levels of responsible authority, without regard to
formal and vertical levels of command.12 System is not the operative con-
cept, but rather interdependence and interaction.13 There are, moreover,
multiple levels of government and law in the federations and confedera-
tions of North America within which this can happen, and no felt need
to maintain a single, normative field at the national or transnational level.
Compare in Europe the debate between defenders of national civil codes
and proponents of a European Civil Code, an inconceivable discussion in
the North American context. The diversity of North American levels of law
is accompanied, moreover, with implicit notions of governance and con-
trol, and everywhere in North America, radical assertions of national, state,
or provincial authority are subject to judicial supervision.14 There is no
sense of fixed, monolithic, conflicting systems that can be overcome only
by imposition of a larger, monolithic system. Law in North America is not
systematic, in the European sense, and its ordered chaos exacerbates the
problem of what within it could be the object of efforts of systematization.
So the idea of a North American legal system, in singular form, runs against
everything that exists in the law of North America15 as well as contempo-
rary notions of governance.16 There is also the problem of the rest of the
world.
North America and the World

There are two dimensions to the legal relations between North American
countries and the rest of the world, which are of interest for any discus-
sion of law in North America. The first is the development of transnational
law generally in the world. There is such law and it is often very success-
ful. Two noteworthy examples are the UN Convention on Contracts for
the International Sale of Goods17 and the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards.18 To the best of
my knowledge, all North American jurisdictions are now parties to these
conventions. Some of the Hague Conventions on private international law

have also received widespread adherence, and we are now beginning to see
the emergence of inter-American conventions on private international law
under the aegis of the OAS and its Inter-American Conference on Private
International Law (CIDIP).19 There are also highly attractive and interesting
statements of soft law (of persuasive, though not binding, authority), capable
of adoption by either states or parties, such as the UNIDROIT Principles
for International Commercial Contracts20 and the new American Law Insti-
tute/UNIDROIT Principles and Rules of Transnational Civil Procedure.21
These types of international instruments are important because they are an
important source of harmonization of laws in North America and they are
likely to become more so in the future. They provide the added benefit of
extending beyond North America and therefore of situating North America
within a larger international community. The movement for harmoniza-
tion of laws is thus not presently absent from North America, but it is not
geographically restricted.
The second important dimension of the legal relations between North
American countries and the rest of the world relates to the effect of the
development of a North American legal system (and harmonization of North
American laws) on these worldwide efforts of legal harmonization. The sub-
ject is already a controversial one in Europe, since it has become evident that
construction of pan-European rules (a process distinct from simple removal of
customs barriers) is not always compatible with participation in wider efforts
of harmonization. North America is as important for the world economy and
notions of world law as is Europe, and a turning inward of North American
harmonization efforts can only be detrimental to the wider process. The com-
bination of North American and European internal harmonizations may be
fatal to efforts at the world or nonregional level. There are also, however,
internal problems that are raised by discussion of continental harmonization
or a continental legal system.
Minority Populations in North America

Minority populations within state structures may be the object of discrimina-
tion within a dominant state law to which they are subject, as was historically
the case for Blacks in the United States. Here there are benefits of uniformiza-
tion, in the removal of discrimination. Minority populations, however, often
have their own law, and it is here rather a question of conciliation of dif-
ferent laws. The law of the minority population may be unwritten law, as
in the case of indigenous or chthonic peoples, or written though informal
law, as in the case of Jewish or Islamic peoples. Happily these nonstate laws
have no legislative source, so the process of reconciliation does not involve
a so-called conflict between different legislative enactments, but a larger and

more fluid process of conciliation of laws of varying precision and varying
levels of compulsion. Nonstate laws thus develop general principles of respect
for state law (“The law of the state is law”),22 and state courts are now actively
involved in a process of recognition and enforcement of nonstate laws in a
wide variety of fields, ranging from aboriginal rights and entitlement to land23
through religious family or contract law24 to the so-called cultural defense in
criminal law.25
It is very difficult to predict the effect of a North American legal system on
the subtle process of conciliation of state and nonstate laws in North America.
It is possible that the effect would be beneficial. Distant sources of authority
may be more favorable to the law of minority groups than local ones. Minor-
ity groups may benefit from liberties or freedoms from national regulation
flowing from continental regulation, as where aboriginal tribes might recover
freedom of movement without regard to national boundaries (though perhaps
losing the financial profit of smuggling “contraband” cigarettes). On the other
hand, the general purpose of uniformization or harmonization is to do away
with perceived negative effects of diversity, and the process of national unifi-
cation in Europe was, over time, fatal to local custom and local legal identity.
This process is already well advanced in North America, though there are
now identifiable movements of resistance. It is very difficult to conclude,
however, that the addition of another level of written law, at the supra-
state or continental level, would be neutral in its effect on legal pluralism
in North America. There are therefore many reasons for not thinking posi-
tively about the idea of a North American legal system. There are reasons for
more optimism, however, in thinking about law in North America.
Law in North America

As has been seen, the North American legal context is radically different from
that which prevails in Europe. There are far more jurisdictions; there is more
decentralization of legislative and judicial authority; and there is a complex set
of national, constitutional restraints on all levels of governmental authority.
At the same time there are large commonalities of language and legal tradi-
tion, since the three official languages of North America are all major world
languages and English is dominant among them, and since the common law
is geographically prevalent but in a manner greatly influenced historically by
the civil law.26 As a result there has been a major phenomenon of conver-
gence in the laws of North America, prior to both NAFTA and its immediate
predecessor, the Canada-U.S. FTA, while the process of convergence has
accelerated subsequently to NAFTA. It appears appropriate to speak of a
NAFTA slipstream. At the same time the institutional complexity of North

America provides many procedural opportunities and guarantees to litigants
that are not found in the unitary jurisdictions of Europe. These two notions
of convergence and complexity explain why there is little or no need for the
harmonization of laws in North America. They may be illustrated by exam-
ining the overall effect, successively, of legal institutions in North America,
private international law in North America, and substantive law in North
America.
The Effect of North American Institutions

Both national and state or provincial legislative authority is limited every-
where in North America by federal or confederal division of authority and
by constitutional guarantees of fundamental rights. This has generally not
been the case at the national level in Europe. The result is that discrimina-
tory legislative measures in North America are subject to judicial review and
nonnationals have standing, when they are prejudicially affected, to challenge
them. They do so regularly, and over an entire range of public and private law,
such that the restraints that are now found in Europe, enforced by European
Courts, are often found at the national level in North America, enforced by
national courts.27 Where particular, local, protective measures survive consti-
tutional challenge, there is a judicial determination that such measures are
justifiable, on broad constitutional grounds. In Canada it has been decided,
for example, that the provinces may legislate against nonresidential owner-
ship of ocean-front property28 and that the provinces may refuse recognition
of particular types of foreign judgments.29 As elsewhere in North America,
however, a province cannot exclude non-citizens from the legal profession.30
National constitutions thus provide a broad level of judicial protection to all
North Americans everywhere in North America, though there is no unifor-
mity of protection and local measures may survive. There is also variation,
in Europe, in the protection provided by pan-European norms, given the
notion of the “margin of appreciation” of national legislation found in the
jurisprudence of the European Court of Human Rights.31
Judiciaries themselves are subject to various means of control in North
America, so there is also protection against bias at the judicial level. State
judges in the United States are subject to review by federal judges in consti-
tutional matters;32 state judges in Mexico are subject to amparo revision by
federal judges, in all types of cases;33 in the provincial judiciaries of Canada,
the high court judges are appointed by the federal government, themselves
subject to normal processes of appeal to the level of the Supreme Court of
Canada.34 In the United States, protection is also provided against local biases
of state courts by the notion of diversity of citizenship and by the technique

of removal of a case from state to federal courts, a feature of U.S. law greatly
appreciated by Canadian and Mexican litigants.35
Resolution of disputes in North America is also greatly facilitated by the
widespread use of arbitration, and it should be pointed out that this is very
much a late-twentieth-century phenomenon. In mid-twentieth century, arbi-
tration was seen as contrary to public order in many jurisdictions of the world,
so NAFTA has developed concurrently with the growth and recognition of
arbitration and the need for a North American legal system is correspondingly
reduced, as arbitration provides a continent-wide alternative to litigation.
Arbitration was thus able to become the primary means of dispute resolution
within NAFTA itself. It has functioned well within that cadre, though there
have been particular cases of ongoing difficulty, given that the only sanction
for noncompliance with an arbitral award is imposition of retaliatory mea-
sures. A recent Independent Task Force has recommended the creation of
a permanent tribunal for North American dispute resolution, without pro-
viding any detail as to its composition, procedure, jurisdiction, or means
of execution of judgments.36 It should be pointed out that noncompliance
with judgments of the European Court of Justice is a well-documented phe-
nomenon in Europe37 and that the notion of “intra-circuit non-compliance”
is well established in the United States.38 There is, in short, no guarantee
that a permanent court would provide any benefits not presently available,
and its construction would unquestionably provoke major political and con-
stitutional challenges with potentially deleterious effects on North American
collaboration.
A further important institution in the North American context is the large
law firm, frequently straddling national boundaries. These large firms come
with advantages and disadvantages, but they have unquestionably facilitated
transnational transactions and dispute resolution.39 In Europe, law practice
was, until the late twentieth century, a highly localized and individual process
and law firms were simply local objects of national rules of private inter-
national law, which saw all national differences as conflicts of laws. There
was little by way of conciliation and no instruments of conciliation. Once
expertise on different national laws exists within a single practice struc-
ture, however, methods of conciliation become evident and inconsequential
national differences can be simply avoided. In Europe the effort to “bulk up”
the instruments of legal practice has led to incorporation of legal practice
within accounting firms, a development that now appears to have been (hap-
pily) rejected in North America because of the inherent dangers of conflicts
of interest and loss of privileged information. Lawyers and law firms are not
entirely mobile in North America, but they appear to be mobile enough.40
The pressure for mobility in Europe has led to a right to practice law any-
where within Europe,41 understandably resisted in the name, at least, of the
relevance of local legal education for local legal practice.
The complexity of legal institutions in North America thus facilitates
transnational dispute resolution and transnational transactions. These are
further facilitated by the convergence of private international law in North
America, which has accelerated with the coming into force of NAFTA.
Private International Law in North America

Prior to the 1980s, Mexico functioned as an “import substitution” economy
and as a closed, territorialist legal system. Inspired by the Calvo doctrine,
this meant that there was no place for application of foreign law in Mexico
and no possibility of recognition of foreign judgments or foreign arbitral
awards.42 Quebec had initially received French private international law and
retained some of its earlier, illiberal provisions (notably “revision” of foreign
judgments prior to any possible recognition of them; refusal of recognition
even of domestic arbitration) and common-law Canada worked largely with
nineteenth-century English concepts of jurisdiction, choice of law, and recog-
nition of foreign judgments. It was very difficult to obtain recognition of a
U.S. judgment anywhere in Canada. U.S. law was the most open on the con-
tinent. All of this began to change, however, in the late twentieth century, and
prior to NAFTA. Mexico radically transformed its rules on recognition of for-
eign judgments and arbitral awards in 1988;43 after decades of work, Quebec
enacted its new Civil Code in 1991, to come into force in 1994 with an entire
new Book Ten on private international law; the Canadian courts and notably
the Supreme Court of Canada began a lengthy process of revision of judicial
rules.44 All of this must be seen as a response to worldwide phenomena and
their instantiation in North America. NAFTA itself can be seen as a product
of these phenomena, as well as of the broad process of convergence of private
international law rules that was already taking place in North America. A cer-
tain threshold of convergence is necessary to trigger thoughts of a common
market, which itself then accelerates the process. The convergence has man-
ifested itself in a number of distinct fields of private international law, both
before and after NAFTA.
Jurisdictional determination is not burdened in North America by the use
of citizenship or nationality as a ground of exorbitant jurisdiction, as has his-
torically been the case in Europe, since the federal or confederal nature of
North American countries has prevented any possibility of use of citizenship
for internal jurisdictional questions. The common law has also historically
preferred domicile, residence, and physical presence over citizenship as a
jurisdictional ground, such that jurisdiction in North America is usually asso-

ciated with some material and actual connection to a case, as opposed to
a purely political connection. The further exorbitant ground of jurisdiction
that consists of the simple presence of property within the jurisdiction was
abolished in the United States in the late 1970s,45 and in Quebec with the
coming into force of the new Civil Code in 1994.46 Choice of jurisdiction
clauses is also now generally accepted everywhere in North America. The
generally justifiable grounds of jurisdiction in North America facilitate the
mutual recognition of judgments, and since the late 1980s, a broadly equiv-
alent regime of recognition has existed in each of the NAFTA countries.
Revision of foreign judgments was abolished in Quebec from 1994,47 and
the Supreme Court of Canada established a general principle of recognition
of foreign judgments in cases of “real and substantial connection” of the case
with the foreign, adjudicating court in 1990.48 There have been many sub-
sequent cases of Canadian recognition of foreign judgments. Article 569 of
the Mexican Federal Code of Civil Procedure, enacted in 1988, establishes a
basic presumption in favor of recognition of foreign judgments, and Article
564 provides for recognition when grounds of jurisdiction used by the foreign
court are compatible or analogous with Mexican law.49 From a general per-
spective, judgments appear to circulate within North America with as much
facility as they do in Europe, in the absence of the uniformized texts that
exist in Europe. While a North American jurisdiction retains the possibility
of taking protective measures by way of blocking statutes,50 in the case of a
foreign judgment, there is also the possibility of obtaining a “transformative
judgment” elsewhere within the national jurisdiction, such that the foreign
judgment becomes effectively recoverable under the Full Faith and Protec-
tion necessarily accorded the transformative judgment of the sister state or
province, in all North American jurisdictions.51
There is divergence in North America at the level of choice of law
in tort, though less divergence elsewhere in the choice-of-law process and
little apparent divergence in the large role accorded to party choice in
matters of contract.52 Parties can therefore avoid the diversity of con-
tract law by choosing a single, governing law. Most significantly, however,
there is no general rule in North America (though Mexican law is not
as clear on this as elsewhere) to the effect that rules of private interna-
tional law must be applied on the judge’s own initiative, as is the case in
many civil law countries in Europe. Such a rule effectively creates a time-
consuming and expensive presumption of conflict of law among member
states, since as soon as a case exhibits a transborder dimension, it must
be halted for application of choice-of-law rules and determination of the
applicable law, without any consideration of whether the potential differences
among the laws in presence constitutes an actual conflict. In North America,

where conflicts rules must be raised by the parties and need not be raised
by the court, it is entirely possible to bury differences in the articulation
of laws if the parties, knowing both laws, decide the formal differences are
inconsequential. Harmony of laws is thus presumed, and the operation of the
common market enhanced.53
North American courts have also displayed considerable initiative in devel-
oping cross-border means of collaboration in various forms of complex,
ongoing litigation. Judicial telephone conferences have been held in cross-
border child custody cases,54 and there have been joint protocols and even
joint teleconference proceedings in Canada-U.S. bankruptcy proceedings.55
These protocols are developed by lenders and creditor’s committees and are
approved by the judges in Canada and the United States who are charged
with the respective bankruptcies, allowing parties to concentrate on the com-
mercial and reorganizational aspects of the case rather than on pure conflict
of laws issues.56
These sector-specific forms of collaboration are now a common phe-
nomenon, illustrated by the work of the Hague Conference on Pri-
vate International Law on the return of abducted children.57 Further
prospects of collaboration are now opened by the completion of the
American Law Institute’s project on cooperation among NAFTA coun-
tries in transnational insolvency cases.58 Collaboration among institutions,
facilitated by a common language, thus may obviate the need for a
uniform law.
Substantive Law in North America

There is no provision in NAFTA for the harmonization of substantive law.
Since NAFTA has been functioning successfully since 1994, this in itself
demonstrates that a free trade or common market area does not require elim-
ination of diversity of legal texts, in spite of constant affirmations to the
contrary by proponents of harmonization in the European context. This does
not mean that harmonization measures are unnecessary in the European con-
text, but it does mean that a free trade area or common market does not
require, in itself and at an abstract level, measures of harmonization. Much
will depend on particular circumstance.59
In North America the lack of harmonization measures is dependent in
large measure on the circumstances of convergence and complexity, which
have been discussed earlier in this chapter. Given a common law background,
there has always been considerable circulation and common implementa-
tion of legal ideas in North America, extending also to civil law jurisdictions
in some measure in spite of resistance.60 The process has accelerated since

NAFTA. Prior to NAFTA, the Canadian common law provinces had imple-
mented, for example, provisions in Personal Property Security Acts, which
closely resembled provisions of the UCC in the United States. Quebec in
1994 followed this pattern and Mexico is now in the process of doing
the same.61 The model of the Delaware corporation has been influential
throughout the United States and Canada, though legislative implementa-
tion inevitably varies in some measure, and there is common attachment in
North America to the principle that it is the law of the state or province of
incorporation that continues to govern the operation of the corporation.62
The Centros63 problem of European law has thus been avoided, and parties
are free to manage where they choose while remaining subject to the law
of the place of incorporation. Differences between the two laws are thereby
reduced in importance.
The absence of legal harmonization is no obstacle to governmental collab-
oration, however, and the current process of intensification of transnational
collaboration of specific governmental agencies is no threat in general to the
nature of NAFTA or to existing North American institutions. It also gives
rise to far less political controversy than a more systematic concept of North
American law or a North American legal system. Each country can participate
as they see fit, and trilateral measures may mean greater equilibrium in negoti-
ations than the double bilateral relations that have often prevailed in the past.
Conclusion
The need for formal measures of harmonization of laws arises only when
informal measures are inadequate. Europe recognizes this in its principle of
subsidiarity but North America is more accustomed to working with informal
measures. North America is accustomed to working with informal measures,
and this process will and should continue. It can be supplemented by more
vigorous efforts of regional legal education, such as that undertaken by the
North American Consortium on Legal Education,64 and by specific efforts
of North American intergovernmental collaboration in different sectors of
commercial and other activity. If Europe is now turning to “enhanced collab-
oration” in lieu of harmonization, there is room for “enhanced collaboration”
in North America. The 2005 “Security and Prosperity Partnership of North
America” was correct, however, to refer to “our respective legal frameworks” in
envisaging future North American collaboration.65 This is the context within
which such collaboration takes place, and it is a generally supportive con-
text. The need for systemic concepts of law does not presently appear to be
established in North America.
Notes
1. Stanley Fish, There’s No Such Thing as Free Speech: And It’s a Good Thing Too
(New York: Oxford University Press, 1994).
2. For the “essentially contested concept,” Jeremy Waldron, “Is the Rule of Law an
Essentially Contested Concept (in Florida?)” (2002) 21 L. & Phil.137, notably
at 148 ff., with refs; William E Connolly, The Terms of Political Discourse, 2nd ed.
(Princeton, NJ: Princeton University Press, 1983, notably at 22–23 (essentially
contested concepts typically appraisive, designation acts both to describe and to
ascribe a value; to describe is always to characterize a situation from the vantage
point of certain interests, purposes, or standards).
3. H. L. A. Hart, The Concept of Law, 2nd ed. (Oxford: Clarendon Press, 1994)
at 24; and see Joseph Raz, The Authority of Law [:] Essays on Law and Morality
(Oxford: Clarendon Press, 1979) at 119 (all legal systems incompatible at least
to a certain extent, all claiming to be supreme).
4. These would be entirely present constructions, “cognitively open” though iden-
tifiable as law through “operative closure.” Niklas Luhmann, Law as a Social
System (Oxford: Oxford University Press, 2004), notably Gunther Teubner, Law
as an Autopoietic System (Oxford/Cambridge, MA: Blackwell, 1993), notably
at 72 (“no binding force”), 80 (closure not isolation) and 131 (“created anew
from moment to moment”); Gunther Teubner, Law as an Autopoietic System
(Oxford/Cambridge, MA: Blackwell, 1993).
5. Michel van de Kerchove and François Ost, Le système juridique entre ordre et
desordre (Paris: Presses universitaires de France, 1988) at 10.
6. Sally F. Moore, “History and the Redefinition of Custom on Kilimanjaro” in June
Starr and Jane Collier, History and Power in the Study of Law: New Directions in
Legal Anthropology (Ithaca, NY/London: Cornell University Press, 1989), 277 at
287–288.
7. In mathematics, see Ivar Ekeland, Mathematics and the Unexpected (Chicago:
University of Chicago Press, 1988) at 88–90, 106.
8. Roger Cotterell, “The Concept of Legal Culture” in David Nelken (ed.), Com-
paring Legal Cultures (Aldershot/Brookfield, VT/Singapore/Sydney: Darmouth,
1997) 13 at 20; and for the variety of concepts of legal systems, Neil
MacCormick, Questioning Sovereignty [:] Law, State and Nation in the European
Commonwealth (Oxford: Oxford University Press, 1999) at 11 (“There is no
single uniquely correct reconstruction of the raw material of law into a single
canonical form of Alegal system”).
9. Stephen Zamora et al., Mexican Law (New York: Oxford University Press, 2004)
at 214.
10. The Economist, February 3, 2007, p. 55; and see Marlene Wind, “The European
Union as a polycentric polity: Returning to a neo-medieval Europe” in J. Weiler
and Marlene Wind, European Constitutionalism Beyond the State (Cambridge:
Cambridge University Press, 2003) 103, notably at 123 (“enhanced coopera-
tion” as a “means of organizing diversity in an increasingly heterogeneous Europe,
while at the same time preserving an integration dynamic”).
11. Allan Gotlieb, The Washington Diaries 1981–1989 (Toronto: McClelland &
Steward, 2006) at 132, 133; and for Mexican adoption of the same methods
in the 1990s, Robert Pastor, Toward a North American Community (Washington,
D.C.: Institute for International Economics, 2001) at 153.
12. See notably Robert O. Keohane and Joseph S. Nye, Jr., “Transgovernmental Rela-
tions and International Organizations” (1974) 39 World Politics 27; Anne-Marie
Slaughter, A New World Order (Princeton: Princeton University Press, 2004).
13. Generally to this effect in contemporary world relations, Mireille Delmas-Marty,
“Le pluralisme ordonné et les interactions entre ensembles juridiques,” Dalloz
(2006) at 951 (illusory closure of systems, utopia of juridical unity, rather
“multiples interactions,” need to privilege dynamic rather than static approaches,
movement over models).
14. For amplification, H. Patrick Glenn, “Conflicting Laws in a Common Mar-
ket: The NAFTA Experiment” (2001) 76 Chicago-Kent L. Rev. 1789, at 1791;
H. Patrick Glenn, “Reconciling Legal Regimes: Legal Relations of States and
Provinces in North America” (1998) 15 Arizona J. Int’l. & Comp. L. 255.
15. For the great variety of structures of free trade arrangements in the world,
and their path dependency, or adherence to existing institutions and legal tra-
ditions in the region, see the multi-jurisdictional study of Francesco Duina,
The Social Construction of Free Trade: The European Union, NAFTA and
Mercosur (Princeton: Princeton University Press, 2006), notably at 3 (continu-
ity between the shape of RTAs and preexisting local realities), 28 (standardizing
and minimalist approaches), 52 (path dependency), 67 ff. (for NAFTA’s min-
imalist approach documented through a study of definitional and normative
notions in the NAFTA texts), 71 (NAFTA officials have avoided the cogni-
tive standardization of the world . . . been rather explicit about their desire not
to codify the world (emphasis in original), 74 (EU 18 times greater cognitive
production).
16. On “network structures” as the most promising contemporary form of gover-
nance, Beate Kohler-Koch, “The Strength of Weakness: The Transformation of
Governance in the EU” in Sverker Gustavsson and Leif Lewin, The Future of the
Nation State (London/New York: Routledge, 1996) 169, notably at 190, “This
new notion of governance respects the autonomy of societal actors and contrary
to conventional thinking does not consider the successful reduction of complexity
a prerequisite to effective government” and, citing Kickert, “[d]ifficult complex
relations and strategic drastic changes are no longer considered as problems and
difficulties which have to be mastered, but rather as sources of innovation . . .
Management of complex networks is then not the maintenance of sensitive
intricate balances, but the deliberate use of imbalances for the sake of renewal.”
17. In the U.S., 15 U.S.C.A Appendix, and Canada, S.C. 1991, c. 13; for discus-
sion and references, Eugene Scoles, Peter Hay, Patrick Borchers and Symeon
Symeonides, Conflict of Laws, 3rd ed. (St. Paul: West, 2000) at 900 ff.
18. Convention on the Recognition and Enforcement of Foreign Arbitral Awards 21
U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 3 and reproduced in Thomas
Carbonneau, Cases and Materials on International Litigation and Arbitration
(St. Paul: Thomson/West, 2005) at 424.
19. See generally Diego P. Fernández Arroyo, “L’influence des conventions interna-
tionales sur l’actualisation du droit international privé: Le cas latino-américain”
in Swiss Institute of Comparative Law, The Responsiveness of Legal Systems to
Foreign Influences (Zurich: Schulthess, 1992) 217; and for texts of the Conven-
tions, Leonel Pereznieto Castro & Jorge Alberto Silva Silva, Derecho Internacional
Privado: Parte Especial (Mexico City: Oxford University Press, 2000). For the
place of this work in harmonization of laws in the Americas, H. Patrick Glenn,
“Harmony of Laws in the Americas” (2003) 34 U. Miami Inter-Am. L. Rev. 223.
20. See International Institute for the Unification of Private Law, Principles of Inter-
national Commercial Contracts (Rome: Unidroit, 1996); and Michael Bonell,
An International Restatement of Contract Law, 2nd ed. (Irvington-on-Hudson,
NY: Transnational Publishers, 1997); Michael Bonell, “The UNIDROIT Prin-
ciples of International Commercial Contracts: Why? What? How?” (1995) 69
Tulane L. Rev. 1121; Boris Kozolchyk, “The UNIDROIT Principles as a Model
for the Unification of the Best Contractual Practices in the Americas” (1998) 46
Am. J. Comp. L. 151.
21. H. Patrick Glenn, “The ALI/UNIDROIT Principles of Transnational Civil Pro-
cedure as Global Standards for Adjudication?” (2004) 19 Uniform L. Rev. 829,
with refs.
22. On this maxim of Talmudic law, and similar conciliatory techniques in other
laws, H. Patrick Glenn, On Common Laws (Oxford: Oxford University Press,
2005) at 131 ff.
23. In Canada the leading case is Calder v. British Columbia (A.G.) [1973] S.C.R.
313, 34 D.L.R. (3d) 145.
24. For the pervasive and complex character of this process, Christelle Landheer-
Cieslak, La religion devant les juges français et québécois de droit civil (forthcom-
ing, Yvon Blais/Bruylant); and in U.S. law, Ann Estin, “Embracing Tradition:
Pluralism in American Family Law” (2004) 63 Maryland L. Rev. 540, notably
at 541–2 (U.S. judges developing multicultural family law, making “space for
traditions to flourish”).
25. Alison D. Renteln, The Cultural Defense (New York: Oxford University Press,
2003).
26. For the United States, where the large state of California has a Civil Code, see
notably Peter Stein, “The Attraction of the Civil Law in Post-Revolutionary
America” (1966) 52 Va L. Rev. 403; W. Hamilton Brison, “The Use of Roman
Law in Virginia Courts” (1984) 28 Am. J Legal Hist. 135; Michael H. Hoeflich,
Roman and Civil Law and the Development of Anglo-American Jurisprudence in
the Nineteenth Century (Athens, GA: University of Georgia Press, 1997); Mathias
Reimann (ed.), The Reception of Continental Ideas in the Common Law World
(Berlin: Duncker & Humblot, 1993); Stefan Riesenfeld, “The Influence of
German Legal Theory on American Law: The Heritage of Savigny and His Dis-
ciples” (1989) 37 Am. J. Comp. Law 1 (notably on reception of highly abstract
concept of “secured transactions,” alien to prior common law thinking, in the
U.C.C.).
27. For the complex nature of controls on states and provinces in Canada and
the United States, Glenn, “Reconciling Regimes,” supra note 14, distinguishing
between simple control of unilateralism, on the one hand, and more integra-
tive forms of bilateral institutions, norms or accords which preclude, a priori,
unilateral measures.
28. Morgan v. A. G. for Prince Edward Island (1975) 55 D.L.R. (3d) 527 (S.C.C.).
29. Worthington Corp. c. Atlas Turner inc. [2004] R.J.Q. 2376.
30. For the United States, In re Griffiths, 413 U.S. 717; for Canada Law Society of
British Columbia v. Andrews [1989] 56 D.L.R. (4th) 1. For Mexico, through indi-
vidual use of amparo proceedings, though not giving rise to precedential effect,
Sydney M. Cone III, International Trade in Legal Services (1996) 6.2; and for pro-
gressive elimination of the legislative requirement of citizenship, Zamora, supra
note 9, at 63.
31. James A. Sweeney, “Margins of Appreciation: Cultural Relativity and the
European Court of Human Rights in the Post-Cold War Era” (2005) 54 I.C.L.Q.
459 (with refs), notably at 467 (“ethical de-centralisation or subsidiarity”).
32. Shelley v. Kraemer 334 U.S. 1 (1948).
33. Zamora, supra note 9, at 215.
34. H. Patrick Glenn, “Divided Justice? Judicial Structures in Federal and Confederal
States” (1995) 46 S. C. L. Rev. 819.
35. Glenn, “Conflicting Laws”, supra note 14 at 1810.
36. Council on Foreign Relations, “Building a North American Community: Report
of an Independent Task Force” (New York: 2005) at 22, accessible at http://www.
cfr.org/publication/8102. Cf. Gotlieb, supra note 11, at 491 (with ad hoc panels
you get less bureaucracy and better people).
37. Leone Niglia, “Taking Comparative Law Seriously: Europe’s Private Law and the
Poverty of the Orthodoxy” (2006) 54 Am. J. Comp. L. 401 at 417 ff; Leone
Niglia, “The Non-Europeanisation of Private Law” (2001) 4 Eur. Rev. Pr. L. 575;
and for the process of “de-harmonization” resulting from the creation of two legal
orders within each state, Walter van Gerven, “A Common Law for Europe: The
Future Meeting the Past” (2001) 4 Eur. Rev. Pr. L. 485 at 491.
38. This results from the refusal of the U.S. government to give precedential effect to
decisions of U.S. Circuit Courts of Appeal (the Otero formula transposed to the
U.S.). See generally Samuel Estreicher and Richard Revesz, “Nonacquiescence
by Federal Administrative Agencies” (1989) 98 Yale L.J. 679; Matthew Diller
and Nancy Morawetz, “Intracircuit Nonacquiescence and the Breakdown of the
Rule of Law: A Response to Estreicher and Revesz” (1990) 99 Yale L.J. 801;
Samuel Estreicher and Richard Revesz, “The Uneasy Case Against Intracircuit
Nonacquiescence: A Reply” (1990), 99 Yale L.J. 831. The attitude of the U.S.
government, within the United States, has been characterized as that of “passive
aggressivity.”
39. Glenn, “Conflicting Laws,” supra note 14, at 1796 ff; H. Patrick Glenn, “Com-
parative Law and Legal Practice: On Removing the Borders” (2001) 75 Tulane
L. Rev. 977.
40. For elimination of the citizenship requirement in North America, supra
note 30.
41. Council Directive 98/5 EC, 1998 O.J. (L 77) 36 (aiming “to facilitate practice of
the profession of lawyer on a permanent basis in a Member State other than that
in which the qualification was obtained”).
42. See Héctor Fix-Fierro and Sergio López Ayllón, “The Impact of Globalization
on the Reform of the State and the Law in Latin America” (1997) 19 Houston
J. Int’l. L. 785 at 791 (“To a closed economy corresponded a ‘closed’ legal sys-
tem. Since economic exchange was limited, the room for interaction between the
domestic and the international legal systems was limited”).
43. J. A. Vargas, “Enforcement of Judgments in Mexico: The 1988 Rules of the
Federal Code of Civil Procedure” (1994) 14 Nw. J Int’l. L. & Bus. 376; and
for arbitration, Claus von Wobeser, “Enforcement of Arbitration Agreements in
Latin America: Mexico” in B. M. Cremades (ed.), Enforcement of Arbitration
Agreements in Latin America (Alphen aan den Rijn: Kluwer Law International,
1999) 55.
44. For recognition of arbitration in Quebec, John E. C. Brierley, “Canadian Accep-
tance of International Commercial Arbitration” (1988) 40 Maine. L. Rev. 287.
45. Shaffer v. Heitner, 433 U.S. 186 (1977).
46. Art. 3148, C.C.Q.
47. Art. 3158, C.C.Q.
48. Morguard Investments Ltd. v. De Savoye [1990] 3 S.C.R.1077; and see more
recently, for the possibility of recognizing equitable orders and decrees, for
purposes of transborder enforcement, Pro Swing Inc. v. Elta Golf Inc. 2006
SCC 52.
49. For the texts, see Vargas, supra note 43, at 398, 400.
50. See supra note 29.
51. H. Patrick Glenn, “A North American Transformative Judgment?” (2002) 81
Can. Bar Rev. 469.
52. For the strict lex loci delicti rule recently adopted by the Supreme Court of
Canada, Jensen v. Tolofson (1994) 120 D.L.R. (4th) 289; and for the divergent
approaches in the U.S., S. Symeonides, The American Choice-of-Law Revolution
in the Courts: Today and Tomorrow (2002) 298 Recueil des Cours.
53. H. Patrick Glenn, “Conciliation of Laws in the NAFTA Countries” (2000) 60
Louisiana L. Rev. 1103–1112.
54. See Bagnell v. Bagnell (1991) 108 N.S.R. (2d) 428 (Nova Scotia Family Court
judge telephoning to Senior Judge of Orange County, California, Superior Court
on California law and state of proceedings in applying Hague Convention on the
Civil Aspects of International Child Abduction).
55. See for example, Olympia & York Developments Ltd. v. Royal Trust Co. (1993)
20 C.B.R. (3d) 165 (Ont. C.J.) and generally Bruce E. Leonard, “Developments
and Trends in International Restructurings and Insolvencies” (1999) 3 Can. Int’l.
Lawyer 140 at 145.
56. Leonard, supra note 63, at 145.
57. See L. Silberman, “Cooperative Efforts in Private International Law on Behalf of
Children” (2006) 323 Recueil des Cours 261.
58. American Law Institute, Transnational Insolvency: Cooperation Among the

NAFTA Countries, 4 vols (Huntington, NY: Juris Publishing, 2003), including
Guidelines for Court-to-Court Communications in Cross-Border Cases.
59. See generally Duina, supra note 15.
60. On the general phenomenon, H. Patrick Glenn, “Transnational Common Laws”
(2006) 29 Fordham Int’l. L. J. 457.
61. See John Wilson, “Mexico: New Secured Transactions and Commercial Registry
Laws” (2000) 7 Inter-American Trade Report 1815; and for background, Todd
C. Nelson & Boris Kozolchyk, Harmonization of the Secured Financing Laws of
the NAFTA Partners: Focus on Mexico (Tucson, AZ: National Law Center for
Inter-American Trade, 1998).
62. Leonel Pereznieto Castro and Jorge Alberto Silva Silva, Derecho internacional
privado [:] Parte especial (Mexico: Oxford University Press, 2000) at 213; J.-G.
Castel, Canadian Conflict of Laws, 3rd ed. (Toronto: Butterworths, 1994) at 534;
Scoles et al., supra note 17, at 1105.
63. Case C-212/97—Centros Ltd. v. Erhvervus- og Selskabsstyrelsen, [1999] ECR
I-1459; [1999] 2 C.M.L.R. 551 (allowing parties to establish corporations in
the place of their choice and freeing creation of corporations from the necessary
application of the place of management).
64. http://www.nacle.org; and see Mark Drumbl, “Amalgam in the Americas: A Law
School Curriculum for Free Markets and Open Borders” (1998) 35 San Diego
L. Rev. 1053. For an example of pan-North-American teaching, Barbara Atwood,
Graciela Jasa Silveira, Nicole LaViolette and Tom Oldham, “Crossing Borders in
the Classroom: A Comparative Law Experiment in Family Law” (2005) 55 J. Leg.
Ed. 542.
65. In February 2011, a new “Security and Prosperity Initiative” was announced
by President Obama and Prime Minister Harper; see the Canada-US Joint
Declaration at http://www.borderactionplan.
CHAPTER 3
The Constitutional Presence within

North America
James T. McHugh
Introduction
International agreements that create cooperative associations of one form
or another, including free trade areas, require voluntary interaction among
the member states in order to succeed. Many factors can influence that suc-
cess, but a relatively neglected consideration is the difference in institutional
structure among these governments. Neo-institutional theories suggest that
different governmental structures can affect rational choice decisions regard-
ing policies, both domestic and international.1 The fact that Canada differs
from the other two members of NAFTA (Mexico and the United States) by
having a parliamentary system may be significant in this respect, particularly
during periods of majority government.
The separation of powers that exists within the other two North American
political systems may contribute to obstacles and other delays regarding deci-
sive adoption, implementation, and compliance. This distinction, while only
one of many factors, may contribute to some of the long-term difficulties that
might be experienced if the three countries attempt to evolve this relation-
ship from a free trade zone to a customs union or some other arrangement.
It also suggests that the features of the Canadian parliamentary system that
make it so potentially decisive in recommending and pursuing this sort of
policy (such as the concept of prime ministerial dominance within the con-
text of strict party discipline) has served (in terms of the decision to base
NAFTA upon an “agreement,” rather than a “treaty”), and may continue to
serve, as an inspiration for independent executive action in this area within
the presidential systems of Mexico and the United States.

Therefore, it is advisable to provide an overview and analysis of these insti-

tutional and other significant features of these three countries. That analysis,
while in many respects preliminary to other scholarly and policy studies of
North America, also is essential for gaining a meaningful understanding of
the differences and similarities that pose both a challenge and an opportu-
nity for an increased understanding and cooperation among these continental
neighbors. That understanding could lead to a long-term evolution toward
a greater sense of a North American identity, while simultaneously these
sovereign countries reinforce their own unique sense of national identity and
purpose within a broader world. Again, Canada provides an especially good
political and constitutional model that should be especially conducive toward
advancing its constructive role in achieving greater continental cooperation.
Principal Constitutional Themes

All political systems represent overriding themes of their respective soci-
eties. The three principal countries of North America are no different in this
respect. Appreciating those themes and their significance to each country can
provide insights into the way that they do, and can, interact with each other at
the international and continental levels. The different priorities, perspectives,
and approaches of each country reveal underlying motivations and strategies
that they bring to their negotiations, particularly regarding themes such as
trade, economic cooperation, and policy options.
Canada
The institutional influence of Britain, France, and the United States has
produced political institutions within Canada that have been varied and
dynamic. Nonetheless, other themes that resonate within this political system
have had an even greater influence upon its politics, both domestic and inter-
national. Such crucial themes of the Canadian political system have included
the bilingual heritage of the country. Grounded upon its history of European
colonization and conflict and the lingering heritage of the indigenous peo-
ple who were present long before the arrival of the Europeans, bilingualism
is a symbol of a defining cleavage of Canadian politics and national identity.
After unsuccessful attempts during the eighteenth and nineteenth centuries
to assimilate the French-speaking population that was derived from what
originally had been New France, accommodation of the two largest linguist
groups became an enduring part of the calculation in creating and maintain-
ing Canada as a viable political system. Indeed, that consideration provided
an added impetus for the adoption of a federal system when the country was
The Constitutional Presence within North America ● 59
created in 1867. The Royal Commission on Bilingualism and Biculturalism,

conducted during the 1960s, underscored this dominant theme, prompting
the Official Languages Act and the identification of Canada as a country with
the two official languages of French (spoken as a first language by slightly
more than a quarter of the country’s population) and English.2
Language has played a role in Canada’s approach to diplomacy and
international negotiations. In its dealings with other Western Hemisphere
countries, Canada has insisted on including French as a language of participa-
tion at conferences and within related international organizations, including
the Organization of American States. Indeed, members of Canada’s diplo-
matic services who have worked in this area have made a point of using
French within these proceedings, even on the part of Canadian officials whose
first language is English.3 Appreciating the centrality of this theme can be
important to Canada’s neighbors when approaching matters not only of nego-
tiation, itself, but also of Canada’s policy positions on cultural policy and
trade.
Connected to the theme of bilingualism is the prominent and, often, con-
tentious role of Quebec (Canada’s only majority French-speaking province)
within Canada. Quebec has had a strong sense of a distinct identity since its
existence as the French colony of New France, and it has adopted a defen-
sive posture regarding the preservation of its language and culture since its
conquest by Britain and inclusion within a larger British North America.
Ongoing agitation to promote and preserve that identity culminated with the
policies of the “Quiet Revolution” in the 1960s (which promoted modern-
ization and greater government intervention in this area) and two referenda
(in 1980 and 1996) that sought to gain popular approval for secessionist
initiatives by separatist governments of that province.4 Obviously, succes-
sive Canadian governments have been cognizant of the need to take Quebec
into account regarding any negotiation and agreement that could affect that
province’s future and sense of cultural and linguistic identity.5
Interestingly, though, in terms of the broad theme of continental coopera-
tion, Quebec has proven to be both open and, even, proactive. The economic
viability of Quebec has motivated it to participate in efforts to increase trade
and provide international outlets for its exports, including energy. That inter-
est has influenced Canada’s efforts in this area as well—perhaps providing
additional encouragement to pursue free trade and related policies. Nonethe-
less, any negotiation on the part of Canada is influenced by its desire to
avoid undermining its own national unity, which has included insisting that
other countries would not recognize Quebec as a successor state to interna-
tional agreements (including NAFTA) if it were to pursue a separatist agenda,
successfully.6
Another, related theme is multiculturalism. From a policy perspective, one

of the most important consequences of this theme has been the desire to pre-
serve the culture of Canada’s diverse heritage. Therefore, negotiations that
have a potential effect upon this area can be a point of contention, such
as demands concerning subsidies and protections for cultural industries and
initiatives. Furthermore, the input of regions and communities in the devel-
opment of public policy often can assume a stronger presence within Canada
than within other countries—a theme that will be explored, further, within
the context of that country’s federal system.7
These themes, therefore, provide potential and actual influence in terms
of Canada’s approach to its neighbors. The policy implications can be subtle
but also profound, especially in relation to fostering continental cooperation.
Of course, other North American countries are dominated by political and
constitutional themes that can be even more profound to them and their
continental relationships in this respect.
Mexico
The Mexican political system has been influenced by dominant themes that
revolve around its historical cycle of struggles between populist and elite-
dominated governments. That cycle has produced a legacy of revolution
that formerly culminated with the Revolution of 1910 but that continues
to impose its presence over the national imagination. The Mexican Constitu-
tion of 1917 was the culmination of that process of transforming the nation
by restoring democratic government. It has been notable for the way in which
it has sought to define the relationship between a sovereign people and its
government.
Mexico has been the subject of historical class divisions that have been par-
ticularly stratified and exacerbated by ethnic identities. Indigenous peoples
(including Aztec, Toltec, and Mayan cultures) have been the most oppressed.
At the apex of the system had been people of European ancestry, partic-
ularly, during the colonial period, persons who came directly from Spain,
known as peninsulares, and people of European ancestry who are native to
Mexico, known as crioillos. Between these extremes have been the people
of mixed European and indigenous ancestry, known as the mestizos. This
last group has become symbolic of the larger search for a Mexican national
identity on behalf of “la raza.”8 Mexico’s law and politics have reflected this
political theme, especially in terms of addressing historical exploitation with
populist appeals. Therefore, using the political and legal system to advance
those interests and combat perceived inequalities has been an overriding
theme that has dominated aspects of Mexican politics and remains a factor
in understanding its diplomatic goals and efforts, including in relation to its

continental neighbors.9
In particular, the approach to agrarian reform, social welfare, and the con-
trol of the country’s natural resources have been prominent consequences of
this revolutionary legacy. The principle of the distribution and preservation
of “family patrimony” parallels larger efforts, at the national level, to ensure
government control of key sectors of the economy, ostensibly so they can be
applied toward the improvement of the entire country and its people. Mineral
resources (including oil) have been particularly targeted in this way with obvi-
ous implications for continental negotiations and cooperation in commercial
areas.10
The Mexican Constitution entrenches protections in labor laws that nor-
mally would be addressed by ordinary legislation. It represents an ongoing
historical theme and, arguably, continuing failure in protecting workers
within that country, including in terms of labor conditions, wages, and
potential exploitation. Those themes are, obviously, particularly relevant to
continental trade and commercial negotiations and agreements, whether in
terms of upholding or undermining relevant standards in this area.11
However, agrarian reform is, arguably, the most conspicuous manifestation
of the revolutionary theme of Mexican law and politics. The eijdos sys-
tem of communal farm lands was constitutionally introduced within Mexico
in response to the historic dominance of large landholders and subsequent
exploitation of peons and other members of the rural population of that
country. The eijdos and the larger hacienda holdings reinforce the constitu-
tional policy of government control over real property, throughout Mexico.
Because that control has explicit implications for foreign investment and
ownership, it also affects Mexico’s negotiating position and its overall relation-
ship with its continental neighbors. Modifications in that area have proven to
be particularly contentious as a result.12
Also, the often contentious relationship between church and state reflects
a broader and conflicting presence of Roman Catholicism within the coun-
try (of which faith more than 90 percent of Mexicans are adherents) that is
reflected within its constitutional system. The Church has been intimately
involved in both historically upholding the authority of the state and its
ruling elite and providing clerics who have played a leading role in popu-
lar resistance and uprisings. Furthermore, the Catholic Church has been one
of the largest private landholders in Mexican history. As a result, a strict sep-
aration of church and state has been included within Mexico’s constitutional
order, including restrictions upon clerics from participation in the electoral
process as well has prohibitions upon the ownership of land by religious orga-
nizations. Although these restrictions were relaxed, somewhat, in 1991, this
secular theme has consequences for the way in which Mexico deals with its
secular neighbors, especially as all three countries have experienced profound
religious influences.13
These themes have influenced, and continue to influence, Mexico’s
approach to its neighbors. They have had a historical effect upon its relation-
ship with the United States as well as other countries. The policy implications
of this legacy can be profound, especially in relation to fostering continental
cooperation
United States
The American political system also was a product of a revolution. However,
the initial revolutionary impetus behind the emergence of an independent
American republic has been more persistent and, arguably, consistent than
its Mexican counterpart. The principle of constitutional entrenchment that
this country introduced has reinforced themes of republican government
(including the concept of a separation of powers) that has been domestically
challenged but relatively enduring.14 Although much of its political and legal
orientation has been influenced by other historical developments (including
continental expansion and the eventual achievement of “superpower” status),
certain constitutional themes continue to exert an influence upon that coun-
try. That influence, in turn, has actual and potential consequences for the
country’s approach to diplomacy and its continental neighbors.
The separation of powers is a particularly significant theme within the
American constitutional order, not just for institutional reasons but also
because it reflects other influences upon its political and legal development.
Both a libertarian suspicion of government and a civic republican emphasis
upon virtual representation of major constituencies (such as property own-
ers and the states, themselves) motivated the introduction of this theme into
the American constitutional system. Therefore, it also reflects considerations
that led to the creation and fostering of the American federal system, which
has significant consequences for the ratification of treaties by the U.S. Sen-
ate (based upon a principle of equal representation for each state), potential
regional objections to international negotiations (especially for matters that
affect trade and commerce), and potential resistance to the implementation
of such agreements.15
Constitutional vagueness regarding the assignment of delegated author-
ity in foreign relations has proven to be a particularly significant theme of
American politics. Arguably, that vagueness was a deliberate result of the con-
flicting political desires and expectations that necessitated so much of the
initial constitutional compromise that created the American political and
legal systems. The president’s authority to appoint diplomatic representa-

tives (including ambassadors) and to negotiate treaties is contrasted with
the authority of Congress to ratify treaties and draft legislation pertaining to
international affairs and policies. The fact that the president can find ways to
circumvent Congress in this area (such as through the negotiation of “agree-
ments,” rather than “treaties,” as was done in relation to the creation and
adoption of NAFTA) does not diminish the influence that the legislature
can independently exert if it prefers a different policy choice in that area.
Obviously, the consequences of this situation can be profound in terms of
the development of relationships and other forms of cooperation with the
continental neighbors of the United States.16
The legacy of the American Civil War continues to exert an indirect pres-
ence upon American politics. That legacy was symbolized by a constitutional
foundation that has not, entirely, disappeared from that country. Matters of
legislative representation, voting rights, and congressional authority over mat-
ters of the economy and trade still resonate with related considerations. The
bitter legacy of slavery and the persistence of racial discrimination through-
out the country’s history also have posed a significant cleavage that continues
to exert an influence over policy decisions of all sorts, including in terms of
international agreements, commerce, and trade.17 It is a factor that often must
be taken into account by American politicians and diplomats, even if only for
domestic reasons.
The American constitutional provision for the admission of new states
indirectly reflects another important political theme with implications in this
area. Territorial expansion has been experienced within the histories of each
of the principal North American countries. However, the American experi-
ence in this respect has been particularly aggressive. Not only has it led to
direct conflicts, at various times, with both of its neighbors (especially during
the early and mid nineteenth century) but also fostered a larger pattern of
American growth and expansion of the United States as a global power. The
legacy of “Manifest Destiny” as a call to continental expansion and domi-
nance may not have been formally reflected within the constitutional system
of the United States but its informal influence has been profound, especially
in terms both of its approach to its international relations and the image
that it has perpetuated among other countries, including its often nervous
neighbors.18
These themes have an enduring influence in terms of the approach of the
United States to its neighbors and, equally, their impression of it. That shared
history continues to be subject to this American political and legal legacy. The
policy implications can be significant in relation to fostering continental trust
as well as cooperation.
Institutional Systems of Government

Institutional differences among these three North American countries have
influenced the political approaches toward negotiation and interaction
among them. In this area, in particular, rational choice objectives can be
altered in subtle but significant ways. The need to navigate different insti-
tutional paths and, occasionally, obstacles has not been appreciated by most
observers and scholars. Nonetheless, it is a factor that ought to be taken into
consideration, especially in terms of anticipating future developments in pro-
moting continental negotiations and further cooperation among these three
countries. Furthermore, it is arguable that, of these three institutional sys-
tems, Canada provides the one that is the most advantageous for both the
successful negotiation and eventual implementation of any such continental
agreements in this area in the future.
Canada
Canada differs most markedly from its two continental neighbors in having a
parliamentary system. This presence, alone, ensures different procedures from
its continental neighbors in approaching the formal process of pursuing coop-
eration with them. A parliamentary structure provides potential advantages in
terms of diplomatic efficiency and effectiveness. It also provides, potentially,
greater decisiveness in relation to a Canadian government’s approach to nego-
tiation and policy development—provided, of course, that the political vision
and will exist in that respect. That institutional factor could be significant in
terms of Canada taking the lead and being more decisive in future efforts
relating to the fostering of North American cooperation.
A parliamentary system represents a principle of “responsible govern-
ment.” It is a system of government in which dominance of the legislature
is essential to obtaining political control. As a necessary condition of this sys-
tem, members of the same political party almost invariably vote the same
way (at least outside of the internal debates that it might conduct in cau-
cus or elsewhere) on all major issues (a necessary condition known as “party
discipline”), thus making the process more predictable and the status of the
government leader (in the Canadian case, the prime minister), stable.19 With-
out this arrangement, government could not function, effectively. The prime
minister must have both the support of the legislature and be a member
of that body in order to assume office. As a “responsible” government, the
Canadian parliamentary system is based upon the expectation that a govern-
ment controls the political process, sufficiently, to guarantee that all of its
legislative goals will be achieved. Failure to achieve those substantive goals
demonstrates a lack of control over the legislature and, thus, indicates that
the government has “fallen” and is no longer able to govern, effectively.20
A government that is determined to pursue foreign negotiations, includ-
ing with continental neighbors, is provided more latitude under this system.
Of course, other political considerations will affect that efficiency. Nonethe-
less, confirmation of foreign policy decisions and ratification of treaties can
be assured within this system, provided that the prime minister’s political
party controls a clear majority of the seats in the lower house of the legisla-
ture.21 In that respect, Canada can be more decisive in its approach to these
negotiations, more clear in expressing its policy objectives, and better able to
control the domestic outcome of that process, including in terms of legislative
ratification. It is an institutional advantage that can influence its role within
the larger scope of continental cooperation. However, it is far from the only
institutional factor that can affect these political and legal goals.
Mexico
Mexico’s presidential system was created in formal imitation of many of the
principal features of the American system of government. However, the his-
torical nature of its party system, emerging particularly from the Revolution
of 1910, has provided a significant difference in terms of the way in which
those institutions have functioned in actuality. Nonetheless, the central fea-
tures and principles of a presidential system of government are very relevant
to the institutional approaches and constraints that Mexico has experienced
and will, potentially, experience in relation to the process of pursuing greater
cooperation with its North American neighbors.
Within a presidential system of government, the role of the executive
(such as the Mexican president) is both prominent and distinct from other
political institutions, especially the legislature. The Mexican president fulfills
the role of both head of state and chief executive of government, which is
both a consequence and emblematic of this relative dominance. The con-
cept of a “separation of powers” (as already noted as a theme of American
constitutional government) is a popular feature of this system.22
This system of government is categorized as “non-responsible.” It provides
for an administration of government that remains in power for a prede-
termined period of time (defined by the fixed election cycle) regardless of
whether or not it succeeds in achieving any part of its legislative agenda. The
“responsibility” that is invoked by this term refers to the fact that a govern-
ment is not held “responsible,” in terms of remaining in office, for failures
to secure a particular policy or legislative agenda. Therefore, no immediate
impetus exists for legislative approval of any policy decisions by the president,
thereby making it theoretically more difficult for that Mexican executive to

guarantee the success of policy initiatives, including in terms of the even-
tual approval of foreign relations policies and international agreements within
North America and elsewhere.23
Prior to the 1990s, the practical one-party dominance of the Partido
Revolucianaro Institucional (better known by its acronym, the PRI) made
the practical consequences of this institutional system of government largely
irrelevant. After having established its political dominance, following the rev-
olution and adoption of the Mexican Constitution of 1917, it solidified that
position through widespread patronage, corruption, and manipulation of the
Mexican political system at both the federal and state levels. This party dom-
inated all of the branches of government, thereby nullifying the potential
competition among them that is a purpose of this institutional system. How-
ever, following the electoral victory of the Partido Acción Nacional (better
known by the acronym PAN) in the 2000 election, that hegemonic domi-
nance was broken.24 Since that pivotal event in Mexican political history, the
institutional purposes of the presidential system of government have proven
to be increasingly relevant. Instead of the president being able to dominate
all branches of government as a party leader in control of strong patronage
(including key judicial and administrative appointments), the constitutional
provisions that were intended to provide a vital role to the legislature within
the Mexican political system have challenged the decisiveness of the pres-
ident’s role in shaping the country’s international relations and economic
policy objectives, including in terms of treaty approval and necessary enacting
legislation.25
Mexico’s strong executive can initiate strong policy objectives, including
in terms of foreign affairs, trade, and relationships with its continental neigh-
bors. However, since the end of the hegemonic role of the PRI in electoral and
administrative politics, the significance of a constitutional separation of pow-
ers has made domestic outcomes in these areas much less certain than they
used to be. The desire to pursue greater continental cooperation must, within
this country, navigate somewhat different institutional paths and potential
constraints, thus making any such process less efficient as it has become,
simultaneously, more democratic.
United States
The presidential system that was created by the United States Constitu-
tion has produced a government that is both stable but, also, deliber-
ately inefficient. Indeed, the difficulty of gaining congressional approval for
NAFTA motivated the American president to seek an agreement among the
continental partners, rather than a treaty that would have required ratification
by the Senate.
The typical features of a presidential system of government apply to the
specific example of the United States. This fact is not surprising because it
was the United States Constitution that first established this institutional
political system. The principle of a separation of powers was a deliberate
attempt to ensure limited government and widespread participation in gov-
ernment. It was not clear, however, whether the model for that principle
was derived from John Locke and his liberal emphasis upon the two “politi-
cal” branches of the executive and legislature or upon Montesquieu’s broader
civic republican vision that provided for a distinct judicial role within that
governmental structure.26 Nonetheless, the underlying motive of dividing
government against itself as a means to satisfy basic sovereign concerns and
ideals provides an institutional consideration for a government (especially the
executive branch) to consider as part of the pursuit of foreign policy objec-
tives, including trade and continental cooperation with the country’s North
American neighbors.27
One aspect of the American presidential system that has proven to be par-
ticularly prominent has been the role of the judiciary. Originally, there was
no constitutional consensus regarding whether its judicial provisions were
intended merely to guarantee the independence of courts from the compet-
itive political process of the executive and legislative branches or to establish
the courts as a definitive branch of government with special responsibility for
providing and imposing constitutional interpretation and arbitration. In this
case, this presidential system of government has been deemed to be struc-
tured in a way that permits the judicial branch of government to invalidate
laws or other government actions that are interpreted as being inconsistent
with constitutional norms and principles. That factor can be relevant to pres-
idents in establishing policies and negotiating agreements and treaties and the
legislature in the approval, ratification, and enactment of such policy prefer-
ences, including in the area of continental cooperation and relations with the
country’s immediate neighbors.28
One other interesting consideration that emanates from this institutional
scheme is the idea of bureaucratic elements constituting a de facto “fourth
branch” of government. Of course, civil administration is a strong and influ-
ential presence within almost all governmental systems, even though their
role is intended to be politically neutral. But the competition over controlling
authority regarding the American bureaucracy between the legislative branch
that authorizes administrative agencies and the executive branch that directs
them in the course of implementing policy has placed it in a particularly influ-
ential position in this respect.29 In fact, some of the criticism of NAFTA and
its supporting (though admittedly meager) infrastructure has been focused

upon the role of the American bureaucratic infrastructure of the Security and
Prosperity Partnership that operates as a small office in the United States
Department of Commerce.30 Particularly in terms of implementation, this
aspect of the American presidential system poses, yet, another consideration
for policy makers and negotiators in the pursuit of greater North American
cooperation.
Federalism
All three of the principal North American countries have a federal system of
government. This feature has had a profound effect, not only upon the inter-
nal development of each country but, also, upon the manner in which they
negotiate and interact with each other. The primary distinctions among these
three federal systems may be identified in terms of two broad, yet distinct,
characterizations: (1) the relative institutional and political strength of the
federal system, itself; (2) the relative degree of centralization or decentraliza-
tion of sovereign authority within the federal system. A strongly centralized
federal system (such as found within Mexico and the United States) can facil-
itate the negotiation and imposition of new legal arrangements that will
provide for further economic and political cooperation. However, a more
strongly decentralized system (such as found within Canada) could, poten-
tially, provide the impetus for more effective implementation of these legal
agreements as well as potentially, among regions and local communities,
foster a greater sense of acceptance and involvement in a broader North
American community.
Canada
Canada has a federal system that is institutionally strong. Compared to its
continental neighbors, it also has a relatively decentralized federal system.
One of the keys to understanding the federal relationship within Canada is
section 92 of the Constitution Act of 1867. Among the sovereign powers that
it delegated to the provincial level was authority over resources. The signif-
icance of that arrangement would not be fully appreciated for decades but
its significance in terms of providing greater economic strength for provin-
cial governments in their relationships with the central government would
be, arguably, the single most significant factor in shifting the balance of
federal relationships in a more decentralized direction. Nonetheless, other
powers of the provincial governments in the area of civil law, property rights,
and administrative responsibility regarding criminal law and other matters of
general enforcement, regardless of jurisdiction, assisted this tendency.31
Historically, the federal system within Canada was, during its initial phase
of the mid-to-late nineteenth century, highly centralized. This trend was the
result of the relative strength of early Canadian administrations in asserting
their dominance over political and economic matters, as well as the ten-
dency of the judicial system to uphold federal claims to this preeminence
in matters involving disputes of jurisdictional authority. However, by the end
of the nineteenth century, the trend toward greater decentralization of the
Canadian federal system had begun. In particular, constitutional rulings on
federal power were, increasingly, appealed to the Judicial Committee of the
Privy Council in London, which served as the final authority on such matters
and which, overwhelmingly, interpreted the British North America Act in a
manner that favored the sovereign claims of the provinces. The federal gov-
ernment in Canada was able to reassert its dominance as a result of the two
World Wars and recourse to the War Measures Act of 1914 and the estab-
lishment of a federal income tax—measures that were, generally, accepted as
being necessary under the circumstances. During World War II, in particular,
practical federal jurisdiction was extended to various social services, including
unemployment insurance.32 Nonetheless, by the end of the war, overall coop-
eration between the two sovereign levels had increased, mainly as a result of
the expansion of the welfare state and the need for this sort of collaboration
in order to implement these policies.33 During the 1950s, this cooperation
was institutionalized through the adoption of First Ministers’ Meetings, in
which formal and informal arrangements in this area were reached, though
with inconsistent and, at times, diminishing success.34
The ultimate result has been a federal system in which intergovernmental
cooperation, including in terms of ongoing institutional relationships (most
conspicuously represented by First Ministers meetings among the various
federal and provincial chief executives), is a necessary element of funda-
mental political and economic initiatives that affect the country as a whole,
though much of that interaction occurs within the central government. This
“intrastate” activity of making institutions within the federal government
responsive to provincial concerns and goals can both facilitate and frustrate
the legal process at the national level, including in terms of implementing the
laws that are mandated by international agreements.35
Canada’s more decentralized federal system may find a relevant parallel
in this respect within the European Union’s adaptation of the principle of
subsidiarity. The context is, of course, completely different because North
American merely seeks greater cooperation among its principal states while
Europe has pursued supranational or, even, confederal union. But even under
the more modest North American objective, subsidiarity may be a use-
ful model because it has guided the political legal cooperation of Europe.
It directs that the implementation of all policies and their translation into law
should be interpreted and applied in a manner that reconciles the overarch-

ing desires for central harmonization with local autonomy and plural diversity
that can be, ultimately, both a centralizing and decentralizing force.36 A cen-
tral law will be imposed only when the actions of individual states, regions,
or subunits are insufficient for achieving a legitimate community objective.
Furthermore, it encourages the interpretation of those central goals through
values and norms that reflect the communities that they directly affect.37
Germany offers a good example of the effect of federalism upon legal sub-
sidiarity. It is possible to argue that Canada’s federal system is best suited to
take advantage of a North American legal system that is based upon subsidiar-
ity, especially as it has been demonstrated within the model of the European
Union. It has been noted that subsidiarity relies upon a process of sovereign
cooperation within a system that is both strong and flexible.38 It could be
argued that the combined federal traits of institutional rigor and relative
decentralization that Canada possesses reflects those conditions, very well.
Mexico
Mexico has a federal system that has been, historically, both highly centralized
and relatively weak in institutional terms, particularly in respect to the prac-
tical protection of sovereign authority at the sub-unit level. Some authorities
have claimed that the establishment of a federal system was a contradictory act
that belied the true nature of the new country’s political system and establish-
ment and may, in fact, have served to facilitate this consolidation, especially
among large landowners (especially of the haciendas) and other powerful
Mexican elites.39
The Revolution of 1910 reestablished an earlier federal principle within
Constitution of 1917. However, the results of that revolution and consti-
tutional establishment also reaffirmed the historical tendency toward strong
executive and centralized government, both of which tend to undermine the
effectiveness of federalism. It has been suggested that the popular associa-
tion of federalism with democracy among much of the Mexican population
made the inclusion of the federal system necessary, even if only in a symbolic
sense. A lack of constitutional rigor for that federal system appears as a sys-
tem of true shared sovereignty appears to have been undermined, though, by
specific constitutional clauses and political conditions.40
Articles 40 and 41 of the Constitution of 1917 do establish, though some-
what vaguely, the federal principle. But the constitutional powers that are
specifically delegated to the Mexican federal government are considerable.
Those powers include the authority over labor law and policy and the social
security infrastructure of the country as established within article 123 of the
Mexican Constitution. These provisions do not merely strengthen the polit-

ical power of the federal government in its relations with the states; it also
represents a fundamental structural advantage for the sovereign authority at
the center that challenges and, arguably, undermines the efficacy of the federal
system as an arrangement of a truly shared sovereignty.41
Another constitutional feature that challenges the structural viability of
the Mexican federal system is the amending formula. The provisions of arti-
cle 135 of the Mexican Constitution are less stringent than many other federal
systems provide, despite providing a process that has been described as creat-
ing a formula that is, formally, “rigid” because it cannot be amended by simple
legislation. That article requires the approval of only a majority of the states
(regardless of population) to ratify (in addition to a two-thirds approval of
both chambers of the federal Congress) a change to the constitution, includ-
ing in terms of the delegation of sovereign authority. It remains a formula that
is, validly, federal but requires consensus among various sovereign units that
other federal systems generally seek to demonstrate, if not actually produce.42
United States
The United States has a federal system that also has become fairly central-
ized in practice. Nonetheless, the institutions of that federal system are well
entrenched and the sovereign power of its sub-units are fairly well protected.
Federalism was not only the central issue that dominated the creation of the
United States but shortcomings in resolving the precise nature and parameters
of that federal union were responsible for the sectarian strife that eventually
resulted in the American Civil War. Three distinct phases of American fed-
eral development have been commonly identified among scholars: “dual,”
cooperative, and the “new” federalism. The first phase reflected the initially
decentralized intent of American federalism. Given the fundamental eco-
nomic differences between the northern and southern states (which included
the uneasy compromise that permitted the continuation of slavery in the
South), the scope of federal powers were kept, deliberately, limited. Nonethe-
less, due to the implications of the “interstate commerce clause” found within
article one, section eight of the United States Constitution, the involvement
of the federal government gradually began to expand into the economic affairs
of the various states, even as the scope of federal civil rights remained nar-
row, particularly because the very definition of national citizenship had been
reserved to the states upon the basis of the “reserve powers” guaranteed by the
constitutional Tenth Amendment.43
Constitutional changes following the American Civil War (including the
adoption of the 13th, 14th, and 15th Amendments) provided part of the
institutional foundation that presaged the second phase in the development

of American federalism. This phase represented the evolution of institutional
centralization within the American federal system. Increased intervention in
the economy at both the state and federal levels (including in terms of regula-
tions regarding public health, safety, and welfare) gradually overcame judicial
objections and greatly expanded the scope and role of the government. The
16 Amendment to the United States Constitution, in clarifying the authority
of the federal government to impose an income tax, tremendously facilitated
the capacity of that level of government to generate revenue.44
The result was a greatly increased role of the federal government in all
aspects of the national economy (especially as the judicially sanctioned con-
stitutional definition of “interstate commerce” expanded) and the creation of
extensive federal programs in the areas of education, social security, public
welfare, emergency assistance, financial regulation, and other fundamen-
tal economic and social activities. Despite sustained attempts to shift more
sovereign authority to the state level during the last decades of the twentieth
century, the results of the Reconstruction amendments, the 16th Amend-
ment (and the enhanced revenue capacity of the central government that
was confirmed by it), and the broad judicial interpretations of the commerce
clause and other constitutional provisions have ensured the prominence of
the federal government.45
A federal system, from these perspectives, can be categorized along two
different axes: degree of centralization; degree of institutional rigor. According
to those criteria, the three principal countries of North America are distinct
from each other. In terms of the centralization axis, Mexico is, by far, the
most centralized, followed by the United States, which is fairly centralized,
and, then, followed by Canada, which is relatively decentralized. Another axis
is based upon a standard of “institutional rigor.” According to this axis, both
Canada and the United States rate fairly high in terms of institutional rigor
while Mexico ranks much lower, perhaps qualifying for a relative designation
of institutionally “weak.” A critical assessment of the constitutional status
of the Mexican states does suggest certain institutional weaknesses that may
have reinforced, also, the trend of political centralization that has been so
prominent within Mexico’s history.46
One consequence of these contrasting federal systems is the affect they
can have upon the process of negotiating continental cooperation. On the
one hand, it is easier for Mexico to negotiate free trade and other coopera-
tive agreements because of the relative authority and institutional dominance
of its central government within that overall political system. On the other
hand, Canada’s more decentralized federal system can make it more difficult
for its central government to negotiate trade and other arrangements without
the practical cooperation of its provincial governments. However, the practi-

cal implementation of these arrangements, once negotiated, can be easier to
fulfill at the regional and local levels precisely because of the relatively greater
sovereign authority that these federal sub-units possess. Meanwhile, the cen-
tral government of the United States also has proven adept at negotiations
with its neighbors. However, actual implementation of these arrangements
has not always been as effective as might be expected, given a relative lack of
involvement of state governments within the overall process.
Conclusion
Like its European counterpart, the process of fostering a greater continental
cooperation (if not the development of a continental identity) has been influ-
enced by the differences, as well as the similarities, found among the principal
countries of North America. Institutional differences provide a potentially
interesting way of understanding and predicting political behavior, including
in response to the adoption and development of public policy, diplomatic
negotiation among countries, and the implementation of policies and agree-
ments. A rational choice model indicates that the pursuit of policy objective
will be influenced, like a mouse pursuing cheese in a maze, by the institu-
tional path that stands between that objective and the political agents who
pursue it. The more difficult the institutional obstacles are, the less likely that
the “mouse” will persist in pursuing the goal. Likewise, governments will be
less inclined to seek a broad policy objective such as greater continental coop-
eration if the institutional means of approving and implementing it are too
daunting. However, if one of those governments feels less constrained, institu-
tionally, in initiating that action and more confident in being able to achieve
its ultimate purpose, it can prompt its potential partners into a more decisive
and, even, optimistic attitude and approach toward pursuing negotiations.
Of the three principal North American countries, Canada may have
an institutional structure that is most conducive toward both leading and
implementing a movement toward greater continental cooperation. The con-
stitutional system of Canada, particularly in terms of both its parliamentary
and federal systems, offers certain advantageous features. Decisive and effi-
cient action can be taken, under such a system, in pursuit of policies that
enjoy definitive government support. Negotiations can be made with relative
confidence of legislative support (including in terms of ensuring the ratifica-
tion of agreements and treaties) that will translate settlements into enabling
legislation. Its institutional strong federal system provides the basis for effec-
tive implementation of those policies at the regional and local, as well as
the national, level. Furthermore, the fact that this federal system is relatively
more decentralized than the federal systems of its neighbors also potentially
aids this process. As the experience of Germany within the European Union
demonstrates, the need to consult federal sub-units may frustrate the abil-
ity to impose a unilateral decision but it also promotes greater cooperation
in implementation, especially at a level at which varying local conditions
need to be taken into account if ultimate implementation is to be affected,
successfully.
Neo-institutional theories suggest that domestic political and legal insti-
tutions matter, even in terms of the way that countries interact with each
other.47 They may provide only a small factor in the overall considerations
that guide future continental cooperation within North America. Nonethe-
less, it remains a potential factor that, combined with other factors, ought
to be taken into account in addressing this important and ongoing trend.
Canada may offer a better institutional model for promoting this process but
both Mexico and the United States offer strong institutional bases from which
their role in these negotiations and policy pursuits also can be initiated. North
America is fortunate in having three principal countries that have sound lib-
eral democratic political and legal systems; that fact may prove to be the most
important asset for the future of the continent.
Notes
1. Dan B. Wood, “Federalism and Policy Responsiveness: The Clean Air Case,”
Journal of Politics 53, no. 3 (August 1991), 851–859.
2. Richard James Joy, Canada’s Official Languages: The Progress of Bilingualism
(Toronto: University of Toronto Press, 1992).
3. Graeme S. Mount and Edelgard E. Mahant, “Review of Recent Literature on
Canadian-Latin American Relations,” Journal of Inter-American Studies and World
Affairs 27, no. 2 (Summer 1985): 127–151 at 145–146.
4. Alain-G Gagnon, Au Dela de la revolution tranquille (Montréal: VLB, 1992).
5. Robert Bothwell, Canada and Quebec: One Country, Two Histories (Vancouver:
University of British Columbia Press, 1998).
6. John F. Helliwell, “Do National Borders Matter for Quebec’s Trade,” Canadian
Journal of Economics 29, no. 3 (August 1996), 507–522.
7. John Berry, “Official Multiculturalism,” in Language in Canada, ed. John
Edwards (Cambridge: Cambridge University Press, 1998) at 84–102.
8. Robert Ryal Miller, Mexico: A History (Norman: University of Oklahoma Press,
1989) at 139–140.
9. Michael C. Meyer, William L. Sherman, and Susan M. Deeds, The Course of
Mexican History (New York: Oxford University Press, 2006) at 614–624.
10. Daniel C. Levy and Kathleen Bruhn, Mexico: The Struggle for Democratic
Development (Berkeley: University of California Press, 2006) at 149–179.
11. Roderic Ai Camp, Politics in Mexico: The Democratic Consolidation (New York:
Oxford University Press, 2006) at 153–157.
12. Ronald H. Schmidt and William C. Gruben, “Ejido Reform and the NAFTA,”
Federal Reserve Bank of San Francisco Economic Letter (October 1992).
13. Stephen D. Morris, “Reforming the Nation: Mexican Nationalism in Context,”
Journal of Latin American Studies 33, no. 2 (May 1999), 363–397 at 382–383.
14. James T. McHugh, Comparative Constitutional Traditions (New York: Peter Lang,
2003) at 33–34.
15. Jessica Korn, The Power of Separation: American Constitutionalism and the Myth of
the Legislative Veto (Princeton, NJ: Princeton University Press, 1996) at 14–26.
16. Daniel S. Cheever and H. Field Haviland, Jr. American Foreign Policy and the
Separation of Powers (Cambridge, MA: Harvard University Press, 1962).
17. Patricia Lucie, “The Enduring Significance of the Civil War Constitutional
Amendments,” in Legacy of Disunion: The Enduring Significance of the American
Civil War, eds. Susan-Mary Grant and Peter J. Parish (Baton Rouge: Louisiana
State University Press, 2003) at 171–187.
18. Anders Stephanson, Manifest Destiny: American Expansionism and the Empire of
Right (New York: Hill and Wang, 1995).
19. Arend Lijphart, Parliamentary versus Presidential Government (Oxford: Oxford
University Press, 1992) at 159–160.
20. Patrick Malcolmson and Richard Myers, The Canadian Regime (Toronto: Uni-
versity of Toronto Press, 2005) at 61–75.
21. Michael J. Ireland and Scott Sigmund Gartner, “Time to Fight: Government
Type and Conflict Initiation in Parliamentary Systems,” Journal of Conflict
Resolution 45, no. 5 (October 2001), 547–568 at 550–552.
22. Giovanni Sartori, “Neither Presidentialism nor Parliamentarianism,” in The Fail-
ure of Presidential Democracy, eds. Juan J. Linz and Arturo Valenzuela (Baltimore:
Johns Hopkins University Press, 1994) at 108–109.
23. Supra note 10 at 176–192.
24. Joseph L. Klessner, “Electoral Competition and the New Party System in
Mexico,” Latin American Politics and Society 47, no. 2 (Summer 2005), 103–142.
25. Manuel Pastor Jr. and Carol Wise, “The Lost Sexenio: Vicente Fox and the New
Politics of Economic Reform in Mexico,” Latin American Politics and Society 47,
no. 4 (Winter 2005), 135–160.
26. Conrad Joyner, “A Liberal Dilemma: Presidential Power and the Separation of
Powers,” Western Political Quarterly 27, no. 4 (December 1974), 593–596.
27. Richard M. Pious and Christopher H. Pyle, The President, Congress, and the Con-
stitution: Power and Legitimacy in American Politics (Mankato, MN: The Free
Press, 1984) at 223–285.
28. Keith E. Whittington, Political Foundations of Judicial Supremacy: The Presidency,
the Supreme Court, and Constitutional Leadership in U.S. History (Princeton, NJ:
Princeton University Press, 2007) at 161–229.
29. Francis E. Rourke, “Bureaucracy in the American Political Order,” Political
Science Quarterly 102, no. 2 (Summer 1987), 217–232.
30. Jerome R. Corsi, The Late, Great, USA: NAFTA, the North American Union, and
the Threat of a Coming Merger with Mexico and Canada (New York: Threshold
Editions, 2009) at 85–101.
31. Peter W. Hogg, Canadian Constitutional Law (Toronto: Carswell, 1992) at
108–112.
32. D. C. Rowat, “Recent Developments in Canadian Federalism,” Canadian Journal
of Economics and Political Science 18, no. 1 (1952), 1–9.
33. J. A. Corry, “Constitutional Trends and Federalism,” in Evolving Canadian
Federalism, ed. A. R. M. Lower (Durham, NC: Duke University Press, 1958)
at 106–110.
34. Alan C. Cairns, “The Governments and Societies of Canadian Federalism,”
Canadian Journal of Political Science 10, no. 4 (Summer 1977), 696–699.
35. Ivo D. Duff, ed., Subsidiarity within the European Community (London: Federal
Trust, 1993) at 29–30.
36. Id.
37. Antonio Estella, The EU Principle of Subsidiarity and Its Critique (Oxford: Oxford
University Press, 2005) at 1–35 and Denis J. Edwards, “Fearing Federalism’s Fail-
ure: Subsidiarity in the European Union,” American Journal of Comparative Law
44, no. 4 (1996), 38–79.
38. Thomas C. Kohler, “Lessons from the Social Charter: State, Corporation, and
the Meaning of Subsidiarity,” University of Toronto Law Review 43, no. 3 (1993),
613–615 and Guenther Schaefer, “Institutional Choices: The Rise and Fall of
Subsidiarity,” Futures 23, (1991), 681–687.
39. Miguel Acosta Romero, “Mexican Federalism: Conception and Reality,” Public
Administration Review 42, no. 5 (1982), 399–404.
40. John Bailey, “Centralism and Political Change in Mexico: The Case of National
Solidarity,” in Transforming State-Society Relations in Mexico: The National Sol-
idarity Strategy, eds. Wayne Cornelius, Ann Craig, and Jonathan Fox (La Jolia,
CA: Center for US-Mexican Studies, 1994) at 97–119.
41. Supra note 37 at 339–404. An analysis of the practical consequences of this
constitutional arrangement is provided in Danielle Homant, “Mexico: Consti-
tutional and Political Implications of the 1995 Natural Gas Regulations,” Tulsa
Journal of Comparative and International Law 4, (1997), 233–274. This aspect of
federalism is addressed in McHugh, supra note 13 at 105–112.
42. James F. Smith, “Confronting Differences in the United States and Mexican Legal
Systems in the Era of NAFTA,” United States-Mexico Law Journal 1 (1993),
94–97.
43. Donald B. Rosenthal and James M. Hoefler, “Competing Approaches to the
Study of American Federalism and Intergovernmental Relations,” Publius 19,
no. 1 (1989), 1–23.
44. Daniel Elazar, “Civil War and the Preservation of American Federalism,” Publius
1, no. 1 (1971), 39–58.
45. Joseph F. Zimmerman, Contemporary American Federalism: The Growth of
National Power (New York: Praeger, 1992) at 102–134.
46. James T. McHugh, “North American Federalism and Its Legal Implications,”
Nortéamerica 3, no. 1 (June 2009), 55–83.
47. Hudson Meadwell, “Institutions and Political Rationality,” in New Institutionalism:
Theory and Reality, ed. André Lecours (Toronto: University of Toronto Press,
2005) at 80–98.
CHAPTER 4
Legal Integration of NAFTA through

Supranational Adjudication
Jay Lawrence Westbrook∗
Introduction
There is a continuing debate about the importance of law to economic
development.1 I have come away from that debate with the belief that law
is not among the primary factors in development, but does have a material
impact. It is even more plausible that law might matter to the evolution of a
regional economic union. At the least, most observers would agree that the
legal institutions of the European Union have become important in its devel-
opment. The direction of the causality arrow as between economic and legal
integration is fairly debatable, but it is probably an interactive relationship,
each element feeding the growth of the other.
Thus, there is some importance in considering how truly supranational
law might develop within NAFTA. By supranational law, I mean legal
rules and procedures that are authoritatively interpreted by institutions that
exist outside of the legal and political structures of the sovereign states that
establish those institutions.2 These rules are frequently classifiable as public
international law, but are capable of creating and enforcing private rights.3
When I refer to legal rules, I mean rules that are generally followed and may
be subject to coercive enforcement.
Of course, there are many avenues through which supranational law might
grow within NAFTA.4 Most obviously, the state parties might amend the
treaty or add additional treaties or side agreements, adopt parallel legislation,
or otherwise legislate legal rules and create legal institutions binding through-
out NAFTA. Others are much better equipped than I to consider how and
why such political developments might arise. My focus is instead on how such

80 ● Jay Lawrence Westbrook
law might grow through the expansion of existing adjudicative institutions.

The most noteworthy example is the body of European Union law that has
been developed by the European Court of Justice.5
The discussion that follows assumes that greater integration within
NAFTA is desirable, a controversial proposition. It is increasingly clear, of
course, that there are great social costs connected with globalization. That fact
creates resistance to NAFTA as one of the institutions devoted to free trade
and investment. This chapter proceeds on the assumption that a strong, inte-
grated NAFTA is part of the solution to the problems of globalization. The
defense of that proposition is a larger topic for another day.
The Potential for Supranational Law in NAFTA

The political and legal structure of NAFTA is very different from that of the
European Union. It is far less integrated at the treaty level and lacks anything
approaching the institutional supranationalism represented by the European
Court of Justice. On the other hand, the experience in Europe, beginning
with the coal and steel community in the early 1950s, suggests that integra-
tion begins with relatively small and weak steps that teach valuable lessons
and give the necessary confidence for development of more powerful insti-
tutions. Thus, it makes some sense to look for buds of supranationalism in
NAFTA, even if they are small and fragile.
The principal instance is found in the systems of arbitration established
under the agreement establishing NAFTA.6 There are several different sys-
tems governing different types of disputes. Chapter 20 of the agreement is
the general or default provision covering all disputes not governed by a spe-
cial procedure.7 It may eventually be the basis for a supranational court like
the European Court of Justice. However, this chapter focuses on two other
dispute resolution mechanisms that have proved especially interesting to date:
Chapters 11 and 19 of the NAFTA agreement.
Chapter 19 provides, in effect, for a NAFTA version of the dispute res-
olution process of the World Trade Organization. It provides for arbitration
with regard to questions of antidumping and countervailing-duty measures.8
Those disputes are among states. Supranational panels established under
Chapter 19 serve the function of appellate review of national administra-
tive decisions with regard to these matters, although the mechanisms used are
carefully crafted to appear as something less than that.9 The arbitrators must
be drawn for the most part from special panels nominated by the parties
under an elaborate procedure.10
A second and even more intriguing subject of NAFTA arbitration derives
from Chapter 11 of the treaty, which gives individual persons the power to
Legal Integration of NAFTA through Supranational Adjudication ● 81
invoke arbitration against any of the sovereign members of NAFTA by claim-

ing that the defendant state has in some way expropriated the individual’s
property.11 Chapter 11 thus has the effect of giving private persons standing
to sue governments and obtain enforceable awards. It was designed primar-
ily to protect against old-fashioned expropriations and was tacitly aimed at
Mexico, which had a history of expropriatory actions. However, the provision
is broadly written and has been invoked in response to regulatory and court
actions that were not explicitly expropriatory, but were claimed to have had
the effect of a taking of property without compensation.12 These decisions
have broadened its application considerably.
While the Chapter 19 arbitration powers arose from the WTO model, the
model for Chapter 11 was the Bilateral Investment Treaty (BIT). Treaties of
this sort have been promoted with great success throughout the developing
world.13 The idea was that international investors would be hesitant to com-
mit themselves to projects in countries with weak and often corrupt judicial
systems. A BIT committed the host country to arbitration procedures that
would assure investors that their claims for expropriation would be resolved
in a neutral arbitral form. The whole process was greatly facilitated by the use
of the International Convention for the Settlement of Investment Disputes
(ICSID), which created a supranational institution to administer such arbi-
trations.14 Developing countries are represented in the governance of ICSID
and have therefore felt relatively comfortable in committing to its procedures.
In addition, the arbitration procedure itself has greatly benefited from the
fact that the UNCITRAL Convention on the Recognition and Enforcement
of Foreign Arbitral Awards15 has become perhaps the most widely adopted
commercial treaty in history, with 142 parties including many developing
states.16 Because this convention makes commercial arbitration agreements
and awards reasonably enforceable, it means that ICSID awards represent
meaningful relief.
Another important piece of the investment-arbitration puzzle is found in
a body of decisions in which BITs have been applied to contract disputes
between individuals and host countries even where there is no arbitration
clause in the contract. The theory has been that a sovereign’s breach of con-
tract under certain circumstances may also represent an expropriation.17 The
combination of this approach with the NAFTA cases finding jurisdiction and
standing in a claim that a regulation amounts to a taking has opened up a host
of possibilities for individual litigation against governments at a supranational
level.
The furthest extension of the trend broadening the application of
Chapter 11 is found in the Loewen case in North America. Without explor-
ing the details,18 the key point is that the arbitration panel found that it had
the right under certain circumstances to determine if the decision of a court

(in this case a U.S. court) amounted to “a manifest injustice” so as to consti-
tute an expropriation under Chapter 11 of NAFTA.19 The panel declined to
resolve the merits of that claim, because it held that the claimant had failed
to exhaust its domestic remedies (in this case an appeal to the U.S. Supreme
Court). Nonetheless, the panel went out of its way to examine closely the
conduct of a Mississippi court and to find it unlawfully arbitrary and unfair.
In effect, the panel found jurisdiction to review such national court deci-
sions by way of the power to compensate individuals for expropriatory action.
Although it limited itself to decisions found to be manifestly unjust, that stan-
dard is not much different from the one that many domestic appellate courts
apply.20 Thus, the decision seems to open the way for supranational review
of domestic court decisions along lines somewhat similar to that provided for
trade-law decisions under Chapter 19.21
Against this background of expansion of supranational jurisdiction, it does
not seem fanciful to see such tribunals expanding their jurisdiction to include
disputes between private persons as well. The sorts of contracts that the
BIT decisions are finding potentially expropriatory often involve a number
of private persons or corporations, including joint ventures. The overall trend
in international commercial arbitration in recent years has been to sweep into
the jurisdiction of arbitrators disputes and parties that were not explicitly
included in an arbitration agreement.22 For example, where one member of
a corporate group or a joint venture has agreed to arbitration, the tribunal
may hold that other members of the group or enterprise have tacitly accepted
arbitral jurisdiction as well.23 Some might say that modern arbitrators are
reminiscent of the English common law judges who used various devices
and fictions to extend their jurisdiction well beyond traditional or statutory
bounds. In that context, it does not seem implausible that more and more
private disputes might be drawn into the NAFTA arbitration system if they
are related to claims against a NAFTA party.
Finally, it is worth noting that the approach of compensating private par-
ties for NAFTA violations is one that is potentially very powerful and one to
which the European Court of Justice has come only relatively recently, quite
late in its development of supranational law-making.24 It is especially potent
because a government that is advised that violation of supranational norms
may lead to millions or even billions of dollars in reparations is apt to pro-
ceed more cautiously than one that believes that the only adverse result it
might suffer would be to change its future conduct. Whether it is desirable to
grant this greater supranational power turns on one’s view of the positive and
negative aspects of supranational law in NAFTA.
The importance of these actual and potential developments should not
be exaggerated. These decisions and decisional trends remain incipient and
uncertain. Further development in the supranational direction probably

depends in large part on the political and social attitudes dominant in the
NAFTA populations, especially in the United States. The possible addition
of other parties to the United States free-trade system25 might strengthen that
development or dilute it. Mr. Dooley’s comments on our domestic judges
may also apply to international ones, even members of arbitration panels.26
Nonetheless, the institutions and legal theories described make available the
mechanisms for supranational law within NAFTA if its expansion commands
the necessary political will and popular support.
For that reason, it is worthwhile to summarize very briefly the positive and
negative aspects of these developments. Both procedures have been attacked
on the ground that they represent a loss of sovereignty. In the United States,
that argument is often stated as a constitutional one: that the arbitration pan-
els infringe powers granted exclusively to domestic institutions by the federal
constitution.27 Chapter 11 litigation has attracted a great deal of additional
criticism. The primary concern has been that the arbitration system is inher-
ently biased in favor of private actors and against government regulation (such
as that protecting the environment).28
On the other hand, it seems clear that these provisions—found in chapters
11 and 19—have also had some of the positive effects intended by their
proponents, especially the United States. In particular, they have forced the
states parties to the NAFTA to take some of its provisions seriously as law
rather than as mere exhortation or as a source of political leverage, and they
have highlighted the potential risks to states in discrimination against foreign
interests.
An Extrapolation
Against this brief description of the current state of NAFTA adjudication, we
can take advantage of the intellectual freedom the organizers have given us
to extrapolate, perhaps to the limits of plausibility, how supranational rules
might evolve to govern certain aspects of commercial law. I choose as my
example multinational bankruptcy law, because that field is the one where
I have done much of my work and because it is a likely candidate for cross-
border regulation and agreement.
One reason that bankruptcy has been a focus of international reform is
that general default by a multinational corporation often implicates the inter-
ests of a number of nations. These interests are not only financial, but relate
to employment, export trade, and other economic and social interests. For
example, the somewhat chaotic collapse of Swiss Air not only created seri-
ous economic problems, but was also a deeply felt embarrassment to a nation
justly proud of its business acumen and success. The airline’s general default
created a host of problems for other European countries as well, including

Belgium, whose national airline (Sabina) had been absorbed by Swiss Air
only a short time before.29 Furthermore, many multinational insolvencies
require court action in real time, unlike the bulk of commercial litigation that
involves sorting out financial responsibility for transactions that failed years
before. The reason is the need to preserve economic values.30 Nations, along
with businesses, employees, and others in the private sector, have a consid-
erable interest in the success of those efforts. Because a multinational’s assets
and creditors are spread across national borders, international coordination
of court action is essential to achieve maximization of value. In turn, that
coordination will be more effective insofar as there are common rules to be
applied and confidence that these rules will be applied in each of the relevant
jurisdictions.
It is for these reasons that so much work has been done in the insolvency
area internationally.31 That work is far in advance of other work related to
commercial litigation. The pressing need for multinational coordination in
multinational bankruptcy cases might mean that bankruptcy would be a field
in which NAFTA integration might move forward earlier than in other legal
arenas. The American Law Institute Principles of Cooperation certainly point
in that direction and offer a framework on which such an effort might build.
An example is the best approach to explaining how a bankruptcy case
might be subject to the decision of an arbitration panel under Chapter 11.32
Suppose a medium-sized company33 is organized and centered in the United
States, but owned by Mexican investors. The company has assets and creditors
in all three NAFTA countries. It experiences cash-flow difficulties and files
for Chapter 11 reorganization bankruptcy34 in the United States. (Note that
the similar short-hand “Chapter 11” for the NAFTA provisions and the U.S.
Bankruptcy Code is purely coincidental.) The company is not required under
U.S. law to show that it is insolvent as a condition of filing, although such
a showing would be required under both Mexican and Canadian law.35 The
management of the company proposes a plan of reorganization that values
the company at U.S.$ 50 million, with debts of U.S.$ 60 million, meaning
it is insolvent and there is no value remaining for shareholders.36 It therefore
allocates all of the company’s value to creditors. The Mexican shareholders
object, claiming the value proposed is far too low, the company is in fact
solvent, and they are entitled to share substantially in the benefits of the plan
by way of a portion of the ownership going forward.37
The management claims the arrangements under the plan will be upset
by any delay in its approval. The bankruptcy court agrees and permits only
a brief trial on the question of valuation. It also makes some quite debat-
able rulings on discovery (i.e., the shareholders’ efforts to get information
about the company) and admissibility of evidence (e.g., expert testimony by

appraisers and others). The court then approves the plan. The sharehold-
ers appeal, but are unable to post the required bond so the plan goes into
effect.38 After plan effectiveness, it would be impossible to “unscramble the
egg” even if the shareholders prevailed on appeal, so instead they file under
the NAFTA, claiming that the arbitrary and discriminatory actions of the
bankruptcy court amounted to an expropriation of their ownership interest
in the company.39
In light of the Loewen decision described earlier in this chapter, it is plausi-
ble that the shareholders could prevail and the United States would be liable
to them for the damages they could prove resulted from arbitrary or dis-
criminatory actions of the bankruptcy court. One of the many difficulties
with this result would be the fact that the U.S. governmental system does
not really provide an opportunity for the executive or legislative branches
to protect its fisc from this sort of loss, except to try to ensure that its
judicial procedures as enacted and as applied will satisfy a post hoc review
by arbitrators from other countries. The risk that non-American arbitrators
will not be satisfied with U.S. procedures is heightened by the differences
in the laws of the three countries. In this case, a Canadian or a Mexican
lawyer or law professor appointed to the panel might be startled and even
offended by the idea that a company could file for bankruptcy without
showing insolvency.40 Such a reaction might predispose that arbitrator to the
shareholders’ complaints.
The example seems to me to encapsulate many of the positive and negative
aspects of legal integration through expansion of supranational adjudication.
On the one hand, investors would undoubtedly feel more confident about
cross-border investments if they knew that an international panel would pro-
vide some ultimate protection against arbitrary action and discrimination
in the bankruptcy process. The fair and efficient management of a general
default is certainly an item on an investor checklist in the evaluation of for-
eign investments.41 On the other hand, many Americans would be offended
at the idea that a group of private persons from other countries could effec-
tively overrule a U.S. court and could subject U.S. creditors to legal notions
literally foreign to our system.
Conclusion
The developments and potential developments discussed in this chapter
illustrate that NAFTA is both less developed and more developed than is
generally appreciated. They also reflect the mixed feelings shared by all
three NAFTA members as to the extent of economic, political, and legal
integration they really want to achieve. Yet it can be plausibly asserted

that regionalism—along the lines of the European Union—is the only real
alternative to globalization and its attendant costs.
Notes
∗
Benno C. Schmidt Chair of Business Law, The University of Texas School of Law.
I am grateful for research help from Jaaron Sanderson, Texas’ 13.
1. See, for example, Michael Trebilcock and Jing Leng, The Role of Formal Con-
tract Law and Enforcement in Economic Development, 92 Va. L. Rev. 1517
(2006).
2. See generally, Laurence R. Helfer and Anne-Marie Slaughter, Toward a Theory of
Effective Supranational Adjudication, 107 Yale L.J. 273 (1997).
3. Traditionally, of course, the key categories were public and private international
law, the former referring to the law binding on states and the latter to choice of
domestic law. That terminology has largely broken down, so supranational law is
a useful transitional term.
4. There is an on-going confusion about the use of “NAFTA” to refer, inter alia, to
the regional grouping, to the agreement creating the regional grouping, and to
the institutions constituting that grouping. In this short chapter I do not attempt
to be very precise in that usage.
5. A fuller discussion of this subject might include an extensive review of EU
jurisprudence and institutional evolution, but here I want to focus on the North
American experience.
6. North American Free Trade Agreement (NAFTA), December 8, 1993, 107 Stat.
2057, 32 I.L.M. 289.
7. 32 I.L.M. 605 at 693 (1993).
8. See generally, Ralph H. Folsom, et al., NAFTA: A Problem-Oriented Casebook
460–96 (2000).
9. NAFTA supra note at art. 1904.
10. NAFTA supra note at annex 1901.2. There is also a provision for review of a
panel’s decision in “extraordinary” cases. Id. at annex 1904.13.
11. NAFTA, supra note 6 at 639.
12. See, for example, David A. Gantz, The Evolution of FTA Investment Provisions:
From NAFTA to the United States-Chile Free Trade Agreement, 19 Am. U. Int.
L. Rev. 679, 724–27 (2004).Guillermo Aguilar Alvarez, The New Face of Invest-
ment Arbitration: NAFTA Chapter 11, 28 Yale J. Int’l L. 365 (Summer 2003)
and Ari Afilalo, Meaning, Ambiguity and Legitimacy: Judicial (Re-)Construction of
NAFTA Chapter 11, 25 Nw. J. Int’l L. & Bus. 279 (Winter 2005).
13. Id.
14. Convention on the Settlement of Investment Disputes between States and
Nationals of Other States, Mar. 18, 1965, 17 U.S.T. 1270; 575 U.N.T.S. 159
(October 14, 1966) (hereinafter ICSID Convention).
15. June 10, 1958, 21 UST 2517, 330 UNTS 3.

16. http://www.uncitral.org/uncitral/en/index.html.
17. See, for example, Vivendi, 41 I.L.M. 1135 (2002), but see, for example, SGS
v. Pakistan, 42 I.L.M. 1285 (2003).
18. The Loewen Group, Inc. v. United States, Final Award, ICSID Case No.
ARB/(AF)/98/3 P 87 (June 26, 2003), available at http://www.state.gov/
documents/organization/22094.pdf (hereinafter Loewen).
19. Id. at 819. The conduct of the trial would then be “a breach of international
justice.” Id. at 832. “Manifest injustice in the sense of a lack of due process leading
to an outcome which offends a sense of judicial propriety is enough, even if one
applies the Interpretation according to its terms.” Id.
20. See, for example, Alfred v. Caterpillar, Inc, 262 F.3d 1083, 1087 (10th Cir. 2001)
(Under an abuse of discretion standard, a ruling will not be disturbed on appeal
unless it is arbitrary, capricious, whimsical, or manifestly unreasonable or unless
Court of Appeals is convinced that the trial court has made a clear error of
judgment, or exceeded the bounds of permissible choice in the circumstances);
Kalis v. Colgate-Palmolive Co., 231 F.3d 1049 (7th Cir. 2000) (Under abuse of
discretion standard, decisions that are reasonable, or not arbitrary, will not be
questioned).
21. NAFTA annex 1904.13.
22. See, for example, Meyer v. WMCO-GP, LLC, 2006 WL 3751585 (Tx. 2006)
(non-signatory may compel arbitration).
23. See, for example, Interim Award, ICC Case No. 4131, 23 September 1982 IX
Y.B. Comm. Arb. 131 (1984); 22 ASA Bulletin 301, 303.
24. See Joined Cases C-46/93 & C-48/93, Brasserie du Pecheur SA v. Germany & The
Queen v. Secretary of State for Transport ex parte Factortame Ltd, 1996 E.C.R. I-
1029 (compensation to beer producers).
25. See Gantz, supra note 12 at 724–727.
26. “ . . . the Supreme Court follows the election returns” http://www.answers.com/
topic/finley-peter-dunne.
27. See, for example, Matthew Burton, Assigning the Judicial Power to International
Tribunals: Nafta Binational Panels and Foreign Affairs Flexibility, 88 Va. L.Rev.
1529 (2002).
28. See, for example, Alvarez, supra note 12 at 385; Christopher R. Drahozal, New
Experiences of International Arbitration in the United States, 54 Am. J. Comp. L.
233 (Fall 2006); John H. Knox, The 2005 Activity of the NAFTA Tribunals, 100
Am. J. Int’l L. 429(2006).
29. See, for example, Sparaco, Pierre, Belgium to Swissair: See You in Court, Aviation
Week & Space Technology, July 9, 2001 at 44.
30. See, for example, A.L.I., Principles of Cooperation in Transnational Insolvency
Cases Among the Members of the North American Free Trade Agreement 13
(2003) (“ALI Principles”). In liquidation as well as reorganization cases the value
of assets and the going-concern value of the business as a whole may be lost
absent prompt action, yet recapitalization or sale of assets generally requires court
approval.
31. See ALI Principles, supra note 30; U.N. Comm’n On Int’l Trade Law, Model
Law on Cross-Border Insolvency with Guide to Enactment, art. 1, U.N. Sales
No. E.99.V.3 (year) (hereinafter Model Law); U.N. TDBOR Comm’n on Int’l
Trade Law, 30th Sess., art. 2(d), at 67–73, U.N. Doc. A/CN.9/442 (1997); U.N.
Comm’n On Int’l Trade Law, Legislative Guide on Insolvency Lawleg guide,
European Regulation Sales No. E.05.V.10 (2005) (hereinafter Legislative Guide).
32. The example I have chosen has the advantage of being relatively accessible by
a nonspecialist. The tradeoff is that it is more like a typical litigation problem
(resolution of a past dispute) than the kind of dispute that requires swift cross-
border coordination as described earlier in the text.
33. Say with assets of $50 million.
34. 11 U.S.C. §1101 et seq.
35. See ALI, International Statement of Canadian Insolvency Law 116 (2003);
International Statement of Mexican Insolvency Law 32 (2003); International
Statement of United States Insolvency Law 13 (2003).
36. I hope it goes without saying that I am simplifying the example. I ask those with
a sophisticated understanding of bankruptcy law to be charitable when I ignore
the details and the possible twists.
37. If the company was solvent, it would be usual for the creditors to receive at least
some of the shares, while the owners got the rest.
38. This situation was presented in Loewen.
39. This claim might or might not be enough to satisfy the Loewen requirement of
exhaustion of local remedies. Loewen, 207–217.
40. Most countries in the world require a showing of insolvency as a precondition
for filing bankruptcy, even reorganization bankruptcy. See Legislative Guide,
supra note 31, at 45–47. I should note in that regard that in most of the
world a bankruptcy proceeding involving a corporation is called in English
an “insolvency” proceeding. See, for example, Jay L. Westbrook, Multinational
Enterprises in General Default: Chapter 15, The ALI Principles, and The EU
Insolvency Regulation, 76 Am. Bankr. L. J 1, 5 at n. 16 (2002).
41. See, for example, The World Bank Principles for Effective Insolvency and
Creditor Rights Systems 2 (Revised 2005).
CHAPTER 5
NAFTA Chapter 11 and the

Harmonization of Domestic Practices
Susan L. Karamanian
Introduction
Chapter 11 of the North American Free Trade Agreement (NAFTA),1 which
authorizes arbitral tribunals to resolve investor-state disputes arising under
the NAFTA,2 is shaping international investment law. It has the potential to
influence, as well, the conduct of key state actors within the United States,
Canada, and Mexico. Chapter 11 arbitral tribunals enforce the NAFTA state
parties’ promise to protect certain foreign investment and, in some cases,
the investors.3 Tribunal awards have helped establish the contours of the
substantive investment obligations.4 In assessing domestic conduct and prac-
tices, the awards have also struck at matters essential to each NAFTA state’s
sovereignty. For example, the decisions of courts and government agencies
of the NAFTA states, whether at the local or federal level, have been and
continue to remain the subject of tribunal review in hotly contested matters.5
The arbitrators who critique domestic practices and render awards based
on them are not judges from the NAFTA state parties, and they face chal-
lenges to their legitimacy from domestic constituencies.6 The arbitrators
are academics, private lawyers, and former government officials, includ-
ing judges, whom the disputing parties—the investor and the state—have
selected to resolve their differences. By examining and, at times, relying on or
distinguishing prior arbitral awards, the NAFTA Chapter 11 tribunals have
assumed some features of a credible legal system. Also, the process has fos-
tered some predictability and consistency, thereby enabling the tribunals to
send clearer signals to states about their NAFTA obligations.7 Yet problems
remain with the arbitral process, particularly due to the absence of formal

90 ● Susan L. Karamanian
rules regarding the effect to be given to prior arbitral awards and the lack of
clarity concerning the investment protections.
This chapter builds on the author’s previous works that focus on
NAFTA Article 1105(1), which affords a minimum standard of treatment
to covered investments.8 It argues that the filing of the cases and the work of
the arbitral tribunals with regard to Article 1105(1) should be considered in a
positive light. The arbitral cases and decisions expose problems with domestic
processes, ones that sometimes run afoul of basic principles of fairness. Tri-
bunal decisions, while affording protection to foreign investment, help align
domestic practices of the NAFTA state parties with international due process
and fairness standards. The result is true even when the tribunal does not issue
a judgment adverse to the host state. The arbitral process itself, particularly
when it results in a published award that contains an extensive review of the
host state’s conduct, elaborates on and helps define relevant legal standards
and puts them in a meaningful context.
The Minimum Standard of Treatment under the NAFTA

Article 1105(1), as Interpreted by the NAFTA State Parties
An investor-state dispute under NAFTA Chapter 11 may be arbitrated
under the auspices of the International Centre for Settlement of Invest-
ment Disputes (ICSID) or under the Arbitration Rules of the United
Nations Commission on International Trade Law (UNCITRAL).9 Arbitral
tribunals issue awards that accept or reject an investor’s claim that the host
NAFTA state breached investment obligations under the NAFTA. They also
award damages, when appropriate.
In resolving disputes, the tribunals apply the NAFTA and “applicable rules
of international law.”10 The NAFTA states are to interpret the NAFTA in
light of its objectives and international law.11 The NAFTA objectives include
“transparency” and the promotion of “conditions of fair competition in
the free trade area” and increasing “substantially investment opportuni-
ties in the territories of the Parties.”12 NAFTA’s preamble recognizes that
the NAFTA states are committed to “ensur[ing] a predictable commercial
framework for business planning and investment.”13 Consistent with the
preamble, each state is to make available its laws, regulations, procedures,
and administrative rulings relating to NAFTA matters.14
The scope of a NAFTA state’s duty to protect investments from another
NAFTA state party, while set out in Chapter 11, is far from clear. The
NAFTA borrows key phrases from international law without providing much
guidance. The interplay between the protections and standards and the broad
NAFTA objectives is not defined. The arbitral awards have helped clarify the
NAFTA and Harmonization of Domestic Practices ● 91
scope of the protections although the legal soundness of certain awards has
been questioned.15
Under NAFTA Article 1105(1), Mexico, Canada, and the United States
agreed to treat investments of investors of other NAFTA state parties “in
accordance with international law, including fair and equitable treatment
and full protection and security.”16 The Article 1105(1) promise is the min-
imum afforded the covered investment, and it is in addition to the states’
commitment to afford the investment and investors the better of national
treatment17 or most-favored-nation treatment.18 Further, the obligation is
separate from the obligation not to expropriate or take measures tantamount
to expropriation subject to compensation and other conditions.19
Article 1105(1) has generated considerable confusion. Professor Susan
Franck has documented how the NAFTA Chapter 11 tribunals in S.D. Myers,
Inc. v. Canada, Metalclad Corp. v. Mexico, and Pope & Talbot, Inc. v. Canada
provided different and possibly inconsistent meanings of Article 1105(1)’s fair
and equitable requirement.20 The awards provide no consistent and coherent
meaning to Article 1105(1).21 According to Professor Franck, “conflicting
awards based upon identical facts and/or identically worded investment treaty
provisions will be a threat to the international legal order and the contin-
ued existence of investment treaties.”22 Obviously, inconsistency undermines
predictability and stability, essential to attracting foreign investment and
promoting important NAFTA objectives
Also, a plausible reading of Article 1105(1) could give rise to an investor’s
claim based on any state action alleged to be “unfair” or “inequitable.” In an
early NAFTA Chapter 11 case, Metalclad Corp. v. Mexico,23 the tribunal
interpreted Article 1105(1) to provide broad protection. In the case, the
U.S. investor had purchased a Mexican company and, per the latter’s federal
permit, started building a hazardous waste landfill. Federal and local author-
ities gave assurances to the investor. Local authorities repeatedly inspected
the work. At some point, however, the local government halted the work
due to the lack of a local permit. The investor restarted construction after
the Mexican federal government indicated that everything was in order and
that the municipality would issue the permit. Upon the project’s completion,
the investor was advised its request for a municipal permit, pending for 13
months, was denied. The landfill was rendered useless. The investor then
raised various claims under NAFTA Chapter 11.
Mexico was found to have violated Article 1105(1) by not treating the
U.S. investor “fairly or equitably.”24 According to the tribunal, Mexico’s
investment regime fell fall short of being reliable:
Mexico failed to ensure a transparent and predictable framework for Metalclad’s

business planning and investment. The totality of these circumstances
demonstrates a lack of orderly process and timely disposition in relation to

an investor of a party acting in the expectation that it would be treated fairly
and justly in accordance with the NAFTA.25
That a legal regime, particularly one in a federal system with decision-makers

at national and state levels, could send mixed signals is not implausible. In the
United States, for example, whether federal or state law governs a matter is
not always clear. Resolution of the controlling law is hard to predict, even
among legal scholars. Bates v. Dow Agrosciences LLC 26 illustrates the point.
In Bates, the U.S. Supreme Court backed off of its pre-emption jurisprudence
involving the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
and reversed the lower courts to allow Texas peanut farmers to pursue state
law claims.27 The state law claims were allowed to proceed even though
the U.S. Environmental Protection Agency had approved the manufacturer’s
label and under the FIFRA the states could not have any labeling or packag-
ing requirements in addition to or different from those required by FIFRA.28
In another case, Wyeth v. Levine, Wyeth had sold its drug with warnings on
the label that the U.S. Food and Drug Administration (FDA) had blessed
but were held insufficient under Vermont tort law.29 FDA approval, accord-
ing to the court, did not preempt state law, and a jury verdict in favor of
the injured plaintiff against Wyeth based on a failure to warn was upheld.30
The dissenting opinion written by Justice Samuel Alito had difficulty rec-
onciling the majority opinion with U.S. Supreme Court precedent or with
well-established preemption principles.31
It would not be much of a stretch for Dow or Wyeth, if their products
were to qualify as investments under NAFTA, to claim a lack of order and pre-
dictability in the U.S. legal system, along the lines of the investor in Metalclad.
The U.S. Supreme Court’s opinions arguably changed the rules mid-stream.
They minimized regulatory approval of the warning, upon which the man-
ufacturers had relied. And the decisions appear at odds with U.S. Supreme
Court precedent.
Even when a single level of government, such as the federal one, has
the final word on a matter, the agency within the government that holds
the power may not be readily discernible. In Coeur Alaska, Inc. v. Southeast
Alaska Conservation Council,32 the federal district court had held that a min-
ing company had properly obtained a permit to discharge waste from the
U.S. Army Corps of Engineers, while the Ninth Circuit Court of Appeals
reversed and held that the Environmental Protection Agency was the appro-
priate permit-issuing agency.33 The U.S. Supreme Court sided with the
federal district court.34 It took three years of litigation (not including the
time that the permit request was before the Corps), three federal courts, and a
sophisticated U.S. Supreme Court opinion, not to mention substantial attor-

ney fees and costs, to cut through layers of statutes, regulations, memoranda,
and legal principles to answer a simple question, “Where does one go to get
a permit?”
The potential for any regulatory matter to be scrutinized under a broad
reading of Article 1105(1) no doubt prompted the NAFTA Free Trade Com-
mission35 on July 31, 2001, to issue an interpretation of the NAFTA.36 The
interpretation’s key feature, which is binding on a Chapter 11 tribunal,37 is
its recognition that the Article 1105(1) minimum standard afforded invest-
ments of investors of another NAFTA party is “the customary international
law minimum standard of treatment of aliens.”38 Under the interpretation,
“fair and equitable treatment” and “full protection and security” under Arti-
cle 1105(1) “do not require treatment in addition to or beyond that which is
required by the customary international law minimum standard of treatment
of aliens.”39 Further, the interpretation established that a breach of another
NAFTA provision or of any other international agreement in itself is not a
violation of article 1105(1).40
Developments outside of the NAFTA are also of importance. In free trade
agreements (FTAs) and bilateral investment treaties (BITs) promoted through
its 2004 model BIT program,41 the United States and its FTA/BIT partners
have agreed the customary international law minimum standard applies to
foreign investments, and the standard expressly includes fair and equitable
treatment and full protection and security.42 In annexes, the parties “confirm
their shared understanding” of customary international law, which they agree
“results from a general and consistent practice of States that they follow from
a sense of legal obligation.”43 The minimum standard “refers to all customary
international law principles that protect the economic rights and interests of
aliens.”44
The first BIT that the United States signed after adopting the U.S. Model
BIT, the U.S.-Uruguay BIT, elaborated on fair and equitable treatment and
denial of justice as follows:
. . . “fair and equitable treatment” includes the obligation not to deny justice in
criminal, civil, or administrative adjudicatory proceedings in accordance with
the principle of due process embodied in the principal legal systems of the
world;45
The U.S. Model BIT uses “includes”; denial of justice is thus an element of
the minimum standard of treatment. In addition, “full protection and secu-
rity” requires a party “to provide the level of police protection required under
customary international law.”46 As to the NAFTA state parties and parties
to recent U.S. FTAs/BITs, doubts about the fact of a minimum standard

and its status as customary international law have been settled. Attempts
to clarify Article 1105(1), however, have fallen short of providing a solid
understanding of the obligation. The interpretation has arguably traded one
standard of uncertainty for another. Yet as set forth later in this chapter,
the NAFTA Chapter 11 arbitral tribunals have helped establish useful and
disciplined parameters concerning the Article 1105(1) obligation.
Unraveling Article 1105(1), as Interpreted

Background
The customary international law minimum standard is now part of a
NAFTA state party’s duty owing to an investor from one of the other two
NAFTA nations. What is the minimum standard?47 In 1910, the former U.S.
Secretary of State Elihu Root referred to “a standard of justice, very simple,
very fundamental, and of such general acceptance by all civilized countries as
to form a part of the international law of the world.”48 Secretary Root’s words
provide some but very little guidance. Even today, scholars struggle with the
meaning of the minimum standard, with the late Professor Ian Brownlie
calling it “unconscionably vague.”49
Uncertainly about the minimum standard does little to help investors and
the NAFTA state parties, which would benefit from a more definite sense
of the concept. Foreign investors need to know the scope of the protection
a NAFTA state owes them, so they can make prudent investment decisions.
NAFTA state parties have legal obligations to certain foreign investors based
on the minimum standard, and their breach of the standard could give rise to
liability. Given the stakes, ambiguity, vagueness, and uncertainty cannot be
reconciled with predictability and order, the very objectives that the Metalclad
tribunal found lacking in Mexico. At a minimum, the NAFTA Chapter 11
tribunals should be able to live up to the very standards they are imposing on
municipal institutions when they sit in judgment of the latter.
To put the matter in perspective, traders from Europe who went to the
Americas and Asia beginning in the 1600s often needed protection when
in foreign lands and subjected to wrongdoing.50 Emmerich de Vattel in The
Law of Nations argued the state had a right under international law to protect
its own subjects due to claimed injury in a foreign country.51 Recognizing
the state’s right to protect its citizens, however, did not resolve the relevant
substantive standard to be applied to the protection. In relatively recent time
the developed world’s ideas of justice and fairness became part of the standard,
a so-called international one, even though local communities in the foreign
lands did not share the developed world’s values.52 As the late Professor Sir
Robert Jennings noted:
That so-called “minimum” standard for the treatment of “aliens” was the
product of the European and North American States wishing to demand a
standard for the treatment of their nationals in foreign countries, which they
called “minimum,” but was nevertheless thought to be higher than the local
national standard in some defendant countries, and which national standard
those countries claimed sufficed for the purposes of international law.53
The international minimum standard, based on European “ ‘ideas of jus-

tice and fair dealing,’ ” was higher than the local standard with little regard
to its “incompatability with the basic value structures of the subordinated
societies.”54
Numerous states, particularly Latin American ones, had rejected a mini-
mum standard that was different from a national one. The story of the Calvo
Doctrine and Latin American resistance to an encroaching international
standard that purported to afford aliens a heightened degree of protection
has been told and need not be repeated here.55 Suffice it to say, the UN
International Law Commission’s Articles on State Responsibility sidestepped
the matter by not addressing the substance of a state’s obligation.56 Profes-
sors Louis B. Sohn and Richard Baxter attempted to clarify the standard,
particularly with regard to denial of access and denial of a fair hearing (ade-
quate preparation time; ability to call witnesses), but their work, a proposed
convention, remained a draft.57
Some guidance has emerged as to an element of the minimum standard,
“denial of justice,” or as one NAFTA Chapter 11 tribunal described, “the
standard of treatment of aliens applicable to decisions of the host State’s
courts or tribunals.”58 The concept derives from the system of reprisals that
emerged before the rise of the modern state.59 With the emergence of the
state, the aliens who claimed an injustice could no longer rely on self-help
and were forced to deal with host states as they controlled “legal processes
(‘exclusive jurisdiction’) in their territory.”60 The concept has advanced with
the increased number of BITs, so that now, at least as to the 2004 U.S.
Model BIT, the obligation not to deny justice applies to “criminal, civil, or
administrative adjudicatory proceedings.”61
Beyond recent U.S. BITs and FTAs, the subject of the obligation is not set-
tled, and even within the context of the NAFTA, it is confusing. Is the duty
not to deny justice limited only to courts and administrative bodies? Does
the concept apply to non-adjudicative decisions of the executive or acts of a
legislature? As Edwin Borchard wrote many years ago, “[t]he term includes
every positive or negative act of an authority of the government, not redressed
by the judiciary, which denies to the alien that protection and lawful treat-
ment to which is duly entitled.”62 In the broad sense, any state action, not
just that of judicial bodies, which courts do not address, could be reviewed
under the standard of denial of justice.
Beyond the issue of what state entity owes the duty is the more vexing
question of the obligation itself. The United States has recognized the applica-
tion of “due process principles embodied in the principal legal systems of the
world.”63 This phrase is not well advanced beyond Elihu Root’s description of
the minimum standard in 1910 with its focus on a simple and fundamental
standard of justice generally accepted by the world’s civilized nations. Some
aspects of denial of justice are well established, such as refusal to enforce, pun-
ishment without trial, and unwarranted severe sanctions,64 yet others are not
clear. For example, are bond requirements in excess of the judgment, which
deprive a party from appealing the judgment, denial of access to courts? Is the
lack of an open and transparent court or administrative system the denial of
justice?
The decisions of the United States–Mexico General Claims Commission
in the early twentieth century helped refine denial of justice, yet the cases
are old and did not concern foreign investment.65 Jan Paulsson and Georgios
Petrochilos have also argued that the often-cited Neer case, which reviewed
Mexico’s failure to investigate the murder of a U.S. national by private parties,
is of limited import to the broader notion of the customary international law
minimum standard.66 The Commission in Neer pronounced a relatively high
standard for denial of justice amounting to “outrage, to bad faith, to willful
neglect of duty, or to an insufficiency of governmental action so far short
of international standards that every reasonable and impartial man would
readily recognize its insufficiency.”67 That standard, according to Paulsson
and Petrochilos, is arguably “relevant only in cases of failure to arrest and
punish private actors of crimes against aliens.”68
Yet, as discussed later in this chapter, Neer has become part of the Article
1105(1) dialogue, in large part due to the NAFTA state parties’ acceptance
of it as defining the minimum standard. And it is not at all apparent why
a standard based on “outrage,” “bad faith,” or “willful neglect of duty” or
to conduct the insufficiency of which “every reasonable and impartial man
would readily recognize” should not apply to any state conduct as to a cov-
ered investment. In fact, the jurisprudence of the NAFTA tribunals, while in
certain instances purporting to shy away from Neer, appears to embrace it.69
The Context of the NAFTA

A NAFTA state party faces the prospect of damages if a Chapter 11 arbitral
tribunal finds the nation in breach of a NAFTA commitment owing a
qualified investor. Each NAFTA state has been and continues to remain
embroiled in disputes under Article 1105(1). The disputes have ranged
from Metalclad, referenced earlier in this chapter, which resulted in a
$16.685 million award against Mexico70 to a Canadian investor’s claim for
$970 million against the United States arising from California’s restrictions
on methyl tertiary-butyl ether (MTBE) in gasoline, which the investor argued
discriminated against it and was thereby unfair and inequitable.71
Disputes against the United States that involve Article 1105(1) claims
have taken aim at federal and California regulations on open-pit metallic
mining,72 the laws of certain states of the United States that require certain
tobacco manufacturers to submit funds into state escrow accounts,73 U.S.
procurement laws, the Buy America program and regulations implementing
that program,74 and the courts of Mississippi75 and Massachusetts.76
Cases against Canada involving Article 1105(1) include a number filed
by U.S. investors concerning environmental protection. For example, a U.S.
investor has claimed that environmental assessments on a proposed quarry
and marine terminal by the government of Canada and the Province of
Nova Scotia and other conditions imposed on the projects were unfair, arbi-
trary, and discriminatory and did not provide full protection and security.77
In another case, the investor alleged that the government of Canada discrim-
inated against the investor in favor of other competitors and to the investor’s
detriment in banning the investor’s pesticides in Canada.78 In a third case, the
investor claimed that the Province of Quebec’s ban on certain pesticides vio-
lated Article 1105(1) obligations, including “basic due process, transparency,
good faith, and natural justice.”79
A number of NAFTA Chapter 11 cases against Mexico allege claims under
article 1105(1). The cases include those challenging government actions
under waste concession contracts (e.g., Azinian v. Mexico; Waste Manage-
ment, Inc. v. Mexico), Mexico’s regulation of gambling devices, and Mexico’s
regulation of the sugar industry, all resulting in no award against Mexico.80
Two recent cases filed against the United States have the potential to
push tribunals deep into thorny issues of domestic governance.81 An adverse
decision against the United States in either case, while unlikely for reasons
discussed later in this chapter, could have broad social, health, and economic
implications for U.S. citizens. The cases involve the process under the Hatch-
Waxman Act for a generic drug manufacturer to obtain FDA approval of the
bioequivalent of a listed FDA drug.82 As the listed drug is likely patented,
in the FDA application, the generic company must certify that it does not
intend to market the drug until after expiration of the patent, or it can certify
the patent is invalid or that the generic drug does not infringe the patent.83
If the generic manufacturer certifies invalidity/non-infringement, the patent
holder can then sue for infringement based on the filing.84 The infringement
action typically stays any FDA decision for 30 months.85 The successful
generic filer is granted a six-month exclusivity period to market the drug.86
For applications filed before 2003, the period runs from the earlier of a court
finding of invalidity or non-infringement of the patent or the commercial
marketing of the generic drug.87 Exclusivity is critical as the generic company
that first reaches the market after a holding of invalidity or non-infringement
of the brand manufacturer’s patent could reap substantial market share.88
The Hatch-Waxman Act encourages the manufacturing of generic drugs
by allowing generic manufacturers to receive FDA approval for drugs already
subject to patents and giving them exclusive limited market access once the
patents expired or were held by a court not to be infringed or valid.89 Litiga-
tion appears part of the process. First, the brand manufacturer, to protect its
patent, may sue for infringement. Second, a triggering event for exclusivity
for applications filed before 2003 was a court decision on patent validity or
infringement. The generic and brand manufacturers, however, have an incen-
tive to settle any invalidity/infringement lawsuit, particularly given the brand
manufacturer’s aversion to a finding of patent invalidity.90 The settlement has
implications beyond the two parties. It could be used to trigger the exclusivity
period and thus be considered as running afoul of U.S. antitrust law, particu-
larly if it were to prevent the FDA from granting rights to additional generic
companies.91
Within this relatively fluid and complex regulatory context, Apotex, Inc.,
a Canadian generic manufacturer, had filed an abbreviated new drug appli-
cation (ANDA) with the FDA for a generic heart medication patented by
Bristol Myers Squibb92 and another ANDA for an antidepressant upon which
Pfizer Inc. holds the patent.93 Bristol Myers did not sue Apotex for infringe-
ment; the latter then sought a court declaration of non-infringement.94
The federal district court dismissed the case based on the parties’ stipula-
tion in which Bristol Squibb admitted it did not intend to sue Apotex for
infringement and that the case should be dismissed for lack of subject matter
jurisdiction.95 Based on the dismissal, the FDA recognized that Apotex was
entitled to 180-day exclusivity, but the federal court of appeals reversed the
FDA on the grounds that the FDA decision was arbitrary and capricious due
to lack of explanation for its conclusion that the court dismissal was a proper
triggering event.96
On remand, the FDA held that the exclusivity period had not been trig-
gered, even though, according to Apotex, the federal court of appeals had held
in a case filed by another generic company that a similar order of dismissal
triggered the period.97 Apotex did not succeed in its court challenges to the
second FDA decision.98 In its NAFTA Chapter 11 case, Apotex alleges that
the decisions of the FDA and U.S. federal courts were “manifestly unjust”
due to their alleged misapplication of the law and they were unlawful, arbi-
trary, and capricious in multiple respects.99 In the Pfizer case, Apotex filed a
declaratory judgment against Pfizer on patent validity and the federal district
court dismissed the case for lack of subject matter jurisdiction.100 Accord-
ing to Apotex, the dismissal prevented it from getting its product to market
under the Hatch-Waxman Act.101 Again, Apotex argues that the district
court dismissal and subsequent judicial review were unlawful, arbitrary, and
capricious.102
The Apotex cases ask the NAFTA Chapter 11 tribunal to second-guess the
FDA and U.S. courts as to matters of U.S. law. The underlying administrative
decisions and cases involve a delicate and complex balance of administrative
law concerning access to generic drugs, the protection of brand drugs under
the patent regime, and the promotion of competition under antitrust laws.
The Hatch-Waxman process has undergone statutory amendments in an
effort to address problems and ambiguities. The volume of academic and pro-
fessional literature on the topic is substantial and evidences that any generic
manufacturing company that applies for an ANDA is venturing into a legal
landscape plagued by litigation and, with it, the resulting uncertainty.
The NAFTA Chapter 11 Awards

Recent NAFTA Chapter 11 arbitral tribunals have limited the contours
of denial of justice in the context of the minimum standard although, at
times, the reasoning of the awards blurs the two concepts. An award under
Chapter 11 is not binding beyond the dispute at issue.103 The decisions reflect
the views of learned international law scholars and are fairly well reasoned and
thoughtful pronouncements of legal principles. At a minimum, the decisions
establish reasonable boundaries on claims that state conduct amounts to a
denial of justice and even as to the broad principle, the minimum standard.
Getting clarity has not been easy. An early NAFTA Chapter 11 award,
Azinian v. Mexico,104 involving a Mexican city’s termination of a U.S.
investor’s waste collection and disposal contract launched the jurisprudence
in the right direction. The Mexican courts had upheld the city’s right to ter-
minate the contract. The claimants did not challenge the Mexican courts’
decisions but argued the city’s annulment of the contract violated NAFTA.
The tribunal used the challenge to the city’s conduct, however, to pronounce
a limited ability of an arbitration panel to review local judicial decisions:
The possibility of holding a State internationally liable for judicial decisions

does not, however, entitle a claimant to seek international review of the national
court decisions as though the international jurisdiction seized has plenary
appellate jurisdiction. This is not true generally and it is not true for NAFTA.
What must be shown is that the court decision itself constitutes a violation of the
treaty.105
According to the tribunal, “the Claimants must show either a denial of justice,
or a pretense of form to achieve an internationally unlawful end.”106 A claim
of denial of justice, if alleged, would have been recognized “if the relevant
courts refuse to entertain a suit, if they subject it to undue delay, or if they
administer justice in a seriously inadequate way.”107 While the Azinian tri-
bunal perhaps needlessly addressed denial of justice, its cautionary words set
the stage for later decisions.
After Azinian, several NAFTA tribunals entered the Article 1105(1) debate
and took it down a different path. As noted earlier in the chapter, Metalclad
pronounced that Article 1105(1) required the host state to “ensure a trans-
parent and predictable framework” for the investor’s “business planning and
investment.”108 A “lack of orderly process and timely disposition” of decisions
undermines the investor’s expectation of fair and just treatment.109 A few
months before the issuance of the interpretation, the tribunal in Pope & Talbot
Inc. v. Canada announced a broad standard for Article 1105(1) as follows:
. . . the Tribunal interprets Article 1105 to require that covered investors and
investments receive the benefits of the fairness elements under ordinary stan-
dards applied in the NAFTA countries, without any threshold limitation that
the conduct complained of be “egregious,” “outrageous” or “shocking” or
otherwise extraordinary.110
Infusion of a fairness notion without a minimum “threshold” raised a red

flag. The flood-gates were set to open for investors who had any complaints
about their investment. The interpretation helped ease the tension. The first
full merits award after issuance of the interpretation to engage the issue was
Mondev International Ltd. v. United States.111 The Canadian investor charged
that the United States, through the Massachusetts courts, violated Article
1105(1) after a jury verdict in its favor for breach of contract against a
redevelopment authority was set aside on immunity grounds.112 The second
challenge was based on the Massachusetts Supreme Court’s reversal of the
jury verdict against the City of Boston due to the investor’s failure to take
appropriate steps to hold the city in breach.113
The case gave the tribunal the opportunity to examine the minimum
standard within the context of the U.S. court system, or as the tribunal
defined it, in terms of denial of justice.114 The minimum standard for pur-
poses of establishing the obligation of the United States, accordingly to the
tribunal, is defined as no earlier than NAFTA’s effective date, 1994, and
the standard is not set in stone; it “has evolved and can evolve.”115 Further,
the NAFTA interpretation expressly incorporated international law, “whose
content is shaped by the conclusion of more than two thousand bilateral
investment treaties of friendship and commerce.”116 With these rulings, the
tribunal cut off the NAFTA nations’ argument that the standard of Neer was
the only governing one.
Yet the tribunal was evidently concerned about second-guessing a state
court’s application of state law, and it effectively established a high, Neer-
like, threshold for denial of justice.117 It cited the pre-1994 decision of the
International Court of Justice Chamber in ELSI that “willful disregard of due
process of law, . . . which shocks, or at least surprises a sense of judicial propri-
ety”118 is actionable arbitrary conduct, even though, as the tribunal in Mondev
acknowledged, ELSI dealt with a treaty obligation that did not involve the
minimum standard. The tribunal then pronounced what it admitted is an
“open-ended standard” under Article 1105(1):
. . . whether the shock or surprise occasioned to an impartial tribunal leads,

on reflection, to justified concerns as to the judicial propriety of the out-
come, bearing in mind on the one hand that international tribunals are not
courts of appeal, and on the other hand that Chapter 11 of NAFTA (like
other treaties for the protection of investment) is intended to provide a real
measure of protection. In the end the question is whether, at an international
level and having regard to generally accepted standards of the administration
of justice, a tribunal can conclude in the light of all the available facts that the
impugned decision was clearly improper and discreditable, with the result that
the investment has been subjected to unfair and inequitable treatment.119
The tribunal disposed of the claim of denial of justice with no shock or

surprise by holding that the Massachusetts courts acted consistently with
applicable legal principles. For example, the investor had argued that, under
state law and practice, issues regarding contract performance should have
been remanded.120 These “quintessentially matters of local procedural prac-
tice” were held not part of Article 1105(1).121 If the investor’s approach were
adopted, “NAFTA tribunals would turn into courts of appeal, which is not
their role.”122 Again, a state court’s application of state law, regardless of
whether correct or incorrect, “does not give rise to an international delict
unless there has been a violation of due process as defined by international
standards.”123
Shortly after Mondev, the tribunal in ADF Group, Inc. v. United States124
adopted a similarly guarded approach to Article 1105(1). ADF, which had
won a subcontract to provide steel components for a Virginia highway
project, intended to use U.S.-originated steel to be fabricated, in part, in
Canada. According to U.S. and Virginia authorities, fabricating the steel in

Canada violated the Buy American requirements incorporated into the sub-
contract. The Virginia authorities refused the general contractor’s request to
waive the Buy America requirement.
Decisions of the Federal Highway Administration (FHWA) of the U.S.
Department of Transportation came before the tribunal. First, ADF argued
the FHWA misapplied relevant case law, which ADF claimed gave it a legit-
imate expectation if could fabricated outside of the United States. According
to the tribunal, the FHWA’s refusal “to follow prior rulings, judicial or admin-
istrative” was not “in itself in the circumstances of this case, grossly unfair
or unreasonable.”125 In fact, the referenced case law arguably was inapplica-
ble.126 Second, ADF argued the FHWA “acted ultra vires and in disregard” of
applicable law.127 While the tribunal held the investor had not made such a
prima facie case, even if it had, the tribunal could do nothing as it “has no
authority to review the legal validity and standing of the U.S. measures here
in question under U.S. internal administrative law.”128 Indeed, “something
more than simple illegality or lack of authority under the domestic law of a
State is necessary to render an act or measure inconsistent with the customary
international law requirements of Article 1105(1).”129 ADF’ s holding is con-
sistent with the principle of Azinian that decisions of municipal courts are
not reviewable absent a violation of the treaty.
The case Loewen Group, Inc. v. United States130 differs from Mondev and
ADF in that a colorable claim of a possible egregious violation of due pro-
cess was established. The claim failed, however, for somewhat technical yet
important reasons. The claimants in Loewen documented nationality-based
comments (anti-Canadian) and race and class-based discrimination during a
trial in a Mississippi court, which resulted in a $500 million judgment against
a Canadian funeral home company and its U.S. subsidiary. The trial judge
could have tempered the comments through jury instructions, but he refused
to do so. The Mississippi courts then rejected a request to reduce or dispense
with the appeal bond for 125 percent of the judgment, which could have
done for “good cause.” The Canadian company then settled “under duress.”
The NAFTA Chapter 11 case was dismissed, however, as the Canadian
corporation, which had gone bankrupt and was then sold, was no longer
the investor.131 Nevertheless, the tribunal pronounced the trial “a disgrace”
and noted “the trial judge failed to afford the company the process that was
due.”132 After documenting instances of unfairness in the trial, the tribunal
observed that “the whole trial and its resultant verdict were clearly improper
and discreditable and cannot be squared with minimum standards of inter-
national law and fair and equitable treatment.”133 There was a “[m]anifest
injustice in the sense of a lack of due process leading to an outcome which
offends a sense of judicial propriety.”134 Yet the state court trial was one
aspect of the judicial process. Responsibility for denial of justice required
the claimants to have exhausted effective, adequate, and reasonably available
remedies under municipal law.135 As the claimants had settled before doing
so, the system had not denied them justice.136 Paulsson would later observe
that “finality is thus a substantive element of the international delict.”137
The heightened standard for establishing a claim under the minimum
standard, as reflected in Mondev and ADF, was reaffirmed and crystallized
in Waste Management, Inc. v. Mexico.138 A U.S. investor through a Mexican
subsidiary had entered into an exclusive waste services concession agreement
with the City of Acapulco. The company had also agreed to build and oper-
ate a solid waste landfill for Acapulco. A bank provided a standby letter of
credit to secure partial payment to the investor. The concession agreement
provided for arbitration of disputes in Acapulco under the rules of an arbitra-
tion center in Mexico City. The company–city relationship became marred.
The bank did not pay the company’s demand under the letter of credit, so the
company sued the bank in the Mexican federal court for non-performance,
but the claim and appeals were dismissed.139 Further, the company sought to
arbitrate the concession dispute, but the arbitration was discontinued when
the city refused to pay an amount as a condition for the arbitration to proceed
and the company refused to pay the city’s arbitration fee to at least keep the
case alive.140
In the NAFTA arbitration, the company alleged breach of the mini-
mum standard, including denial of justice, arising from the acts of the city,
state, and bank. After reviewing the awards on Article 1105(1), the tribunal
announced the following standard that once again purported to retreat from
the Neer standard:
. . . the minimum standard . . . is infringed by conduct attributable to the State

and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust
or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial
prejudice or involves a lack of due process leading to an outcome which offends
judicial propriety—as might be the case with a manifest failure of natural justice
in judicial proceedings or a complete lack of transparency and candour in an
administrative process.141
The tribunal dismissed the claim of denial of justice as to the courts’ deci-
sions as they “were not, either ex facie or on closer examination, evidently
arbitrary, unjust or idiosyncratic. There is no trace of discrimination on
account of the foreign ownership of [the investor], and no evident failure
of due process.”142 The fact that arbitration was not pursued did not give
rise to a claim under Article 1105(1), as the decision not to proceed with the
arbitration, “a decision made by the Claimant on financial grounds, did not

implicate the Respondent in any internationally wrongful act.”143
Recent NAFTA awards reflect a similarly reserved application of the min-
imum standard. In Methanex Corp. v. United States,144 which did not involve
a claim of denial of justice but alleged breach of the minimum standard,
the tribunal dismissed a Canadian investor’s claim that California’s ban of
MTBE and methanol constituted discriminatory treatment. According to the
tribunal, Article 1105(1) does not prohibit discriminatory treatment between
nationals and aliens.145 Customary international law allows a state to “dif-
ferentiate in its treatment of nationals and aliens.”146 Further, even under
the customary international law minimum standard pronounced by Waste
Management, the “conduct must have been ‘discriminatory and expose[d] the
claimant to sectional or racial prejudice.’ ”147 Finding no discrimination, the
claim under Article 1105(1) failed.
Article 1105(1) issues in International Thunderbird Gaming Corp.
v. Mexico148 involved Mexico’s Secretaria de Gobernación allegedly first
pronouncing that federal law did not govern video game machines that
the investor proposed to use in Mexico but then closing a gaming facil-
ity and preventing the opening of other facilities in which the machines
were to be used.149 In the process, the Secretaria issued an administra-
tive resolution that the machines were prohibited gambling equipment.150
In addition, a Mexican administrative body, after a hearing, denied relief to
the investor.151 Thunderbird alleged denial of justice as to the administra-
tive resolution and manifest arbitrariness in the administrative proceedings.
Recognizing that the standard under Article 1105(1) is not rigid and “should
reflect evolving international customary law,” the tribunal pronounced a high
threshold:
. . . acts that would give rise to a breach of the minimum standard prescribed
by the NAFTA and customary international law [are] those that, weighed
against the given factual context, amount to a gross denial of justice or manifest
arbitrariness falling below acceptable international standards.152
The investor presented evidence and was heard before the Administrative
Hearing.153 The 31-page order from the hearing was “adequately detailed and
reasoned.” The proceedings before the Secretaria had “certain irregularities,”
but these were not “grave enough to shock a sense of judicial propriety.”154
Of note, the tribunal acknowledged the standard for administrative due pro-
cess is lower than that of judicial process although it provided no authority for
this statement.155 Further, the tribunal took comfort in that the Secretaria’s
proceedings, including the resolution, were subject to judicial review.156
In Gami Investments, Inc. v. Mexico,157 the U.S. investor alleged an Arti-

cle 1105(1) violation based on Mexico’s failure to implement the Sugarcane
Decree of 1991, which had mandated export requirements and production
ceilings, and the resulting expropriation of sugar mills of a Mexican company
in which the U.S. investor was a shareholder.158 The Mexican company chal-
lenged the expropriation in the Mexican courts as to some of the sugar mills
and prevailed with a finding that the expropriation decrees were unlawful
under Mexican law.159 The U.S. investor alleged that Mexico acted arbitrarily
in implementing and applying the sugar regime and that the expropriation
was arbitrary and discriminatory.160
The case has a number of interesting aspects. First, the U.S. investor was
a minority shareholder of the Mexican corporation. Its losses, if any, were a
function of the status of the Mexican corporation. Second, the U.S. investor
purchased its interest in the Mexican corporation after the Sugarcane Decree
was passed. Third, the sugar market is volatile, and a down market over a
few years could be followed by a strong one. At the time of the arbitration
hearing, the investor still had its investment in the Mexican company and the
sugar business in Mexico was doing well. These factors made it difficult for
the U.S. investor to establish damages due to the alleged failure of Mexico to
maintain the sugar regime.
As for the merits, the tribunal agreed with the U.S. investor that Mexico
had not followed its own law, the Sugarcane Decree, yet that alone does not
give rise to an Article 1105(1) violation.161 A claim of maladministration of
government regulations would require at least a showing of “an ‘outright
and unjustified repudiation’ of the relevant regulations.”162 The tribunal in
GAMI, in establishing the “outright and unjustified repudiation” standard,
drew heavily on Waste Management.163 The matter was more complicated
with the Sugarcane Decree as it contemplated the involvement of nonstate
actors, including unions and corporations, which the government could not
control.164 In this context, particularly when the investor had no contract
with the host nation upon which the investor could argue reliance, the claim
was readily dismissed.
A recent NAFTA Chapter 11 award, Glamis Gold, Ltd. v. United States,165
sets out a rather detailed treatment of the minimum standard and arguably
back-peddles on some of the earlier jurisprudence in Mondev, ADF, and Waste
Management. The case arose out of the actions of the U.S. federal government
and the State of California over an eight-year period in regulating a Canadian
investor’s mining rights in federal land in southeastern California.166 The pro-
posed mining project was near land designated Native American lands and
cultural areas, which complicated matters and made them unsettled.167 The
investor alleged that the federal government inappropriately delayed project
approval and, when approval appeared forthcoming, the State of California

passed laws and regulations that made the project economically unviable.168
In addition to alleging expropriation, the investor made several argu-
ments arising from the alleged arbitrariness of the state conduct, which it
claims violated Article 1105(1). The investor argued that federal law gave
it a legitimate expectation that the project would have been approved.169
The U.S. federal government’s initial opinion gave a bureau the authority
to deny approval of the project plan, and the U.S. Secretary of the Interior
later approved the opinion.170 The investor alleged that the opinion, which
was later withdrawn, was arbitrary as it could not have been reconciled with
then existing law and practice and denied it a fair and transparent business
environment.171 Also, the federal government is alleged to have intention-
ally and unreasonably delayed review, which deprived the investor its right
to orderly process.172 Certain aspects of the federal review relating to cul-
tural resources were also alleged to have been discriminatory and therefore
non-transparent.173 The investor also charged that California measures were
arbitrary and discriminatory and, like the federal action, denied the investor
its reasonable investment expectations.174 And, according to the investor, the
measures collectively violated the minimum standard.175
The tribunal reviewed the customary international law minimum standard
in detail and noted that at least Canada and the United States had agreed
the “ ‘egregious,’ ‘outrageous’, or ‘shocking’ standard as elucidated in Neer”
applied, with Mexico appearing to acknowledge the same.176 It recognized
that tribunals are free to cite to awards of other tribunals in determining how
to apply Neer to the investor’s claims, yet this process should be tempered.
The precedent must have interpreted a treaty provision that sets forth the
duty to comply with the customary international law minimum standard, as
opposed, for example, to the broader duty to provide “fair and equitable treat-
ment,” what the tribunal referred to as an “autonomous standard.”177 In other
words, in the context of a claim under Article 1105(1), the tribunal should
be discerning in its reliance on precedent and not rely on arbitral decisions
that interpret a treaty provision that is different than Article 1105(1).
Relevant precedent could give the tribunal guidance on a “change in the
international view of what is shocking and outrageous.”178 What was not
egregious in 1926 may be egregious now, so in this regard, the standard is
evolving.179 The standard is the same as the one announced in 1926, but its
application could change depending on modern views of the key elements of
Neer.
The tribunal then went on to establish the following test for the minimum
standard:
The fundamentals of the Neer standard thus still apply today . . . an act must
be sufficiently egregious and shocking—a gross denial of justice, manifest
arbitrariness, blatant unfairness, a complete lack of due process, evident dis-
crimination, or a manifest lack of reasons—so as to fall below accepted
international standards and constitute a breach of Article 1105(1).180
Bad faith is not required to establish a breach of the minimum standard, but
its presence is conclusive evidence of it.181
The claims were then dismissed with a detailed analysis of each. The
award’s reasoning, like previous awards, recognizes that a NAFTA state party’s
errors in application of domestic law are subject to domestic review standards
and do not typically give rise to a breach of the minimum standard unless
an element of egregiousness is present.182 For example, the solicitor’s opin-
ion on the project, while reversing prior law, was well reasoned and fully
developed and tackled contentious issues in an objective, nondiscriminatory
manner.183 The opinion was not “manifestly arbitrary” or “blatantly unfair,”
nor did it evidence a complete lack of due process or discrimination or a lack
of reasons.184
An interesting aspect of the decision involves the investor’s argument that
it was entitled to have its reasonable and justifiable expectations met, and
these included swift project approval and non-interference by the federal
and California governments. Yet, according to the tribunal, the investor’s
expectations are relevant only if the investor had at least a quasi-contractual
relationship with the state so that the state had “purposely and specifically
induced the investment.”185 This standard effectively cut off many of the
investor’s claims as there was no evidence that either the federal government
or the State of California had promised the investor that it would not take
the referenced action.
The Glamis Gold award is full of analysis of other state action, for exam-
ple, failure to have public comment on an opinion that created a new denial
authority in the federal government, delay in the issuance of federal agency
decisions, allegedly deficient public hearings in the federal government, and
state environmental legislation that arguably does not meet its intended
objective. In each instance, the challenged conduct was held not to rise to
the high standard although in certain instances a few twists of the facts could
have given the tribunal more reason to pause. Also, the collective claim, that
all of the acts of the U.S. government and the State of California violated the
minimum standard, was quickly dismissed as the tribunal noted the absence
of any evidence that both levels of government intended to halt the investor’s
project.186
Some Coherence on Principles

The NAFTA arbitral tribunals have consistently rejected investors’ misguided
attempts to use the NAFTA tribunals as courts of appeal, and this has been
true since the early Chapter 11 arbitral award, Azinian, which was issued well
before issuance of the interpretation. The mere claim that the decision of a
municipal court or agency has violated municipal law, absent anything else,
is insufficient.
An aggrieved investor must establish that the conduct of a NAFTA state
party violates the NAFTA. For a claim under Article 1105(1), the interpreta-
tion has clarified that the investor must establish a violation of the customary
international law minimum standard. Fair and equitable treatment and full
protection and security are subsumed within the minimum standard.
Since issuance of the interpretation, NAFTA Chapter 11 tribunals have
consistently recognized that the interpretation is binding on them and that
the minimum standard establishes a threshold. State conduct that falls short
of the minimum level of the threshold is not actionable under Article
1105(1). As for claims of denial of justice, which are part of the minimum
standard, the investor must establish that it exhausted its domestic remedies.
The tribunals have not used the exact same words and reasoning in
reaching their definitions of the minimum threshold, yet arguably when the
standards are put to the practical test, their messages are roughly similar.
For example, the tribunal in Glamis Gold relied on Neer and pronounced
what appears to be a heightened minimum standard. Actionable conduct
under Article 1105(1) must be “sufficiently egregious and shocking—a gross
denial of justice, manifest arbitrariness, blatant unfairness, a complete lack
of due process, evident discrimination, or a manifest lack of reasons.”187
Glamis Gold accepted that the Neer standard should be interpreted from a
modern perspective, and in that sense it has evolved and could continue to
evolve.
The tribunal in Waste Management, having cited to Mondev and ADF,
recognized actionable state conduct under Article 1105(1) as being “arbi-
trary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes
the claimant to sectional or racial prejudice or involves a lack of due pro-
cess leading to an outcome which offends judicial property.”188 The tribunal
in Waste Management, like the one in Mondev, steered away from Neer. Yet
Mondev looked to ELSI to inject the “shock” or “surprise” element.189 The
awards in Glamis Gold and Mondev both acknowledge that the state conduct
should be in some sense shocking. To the extent that Waste Management has
cited favorably to Mondev and not expressly rejected the notion of shock or
surprise, its holding is also in line with Glamis Gold.
Glamis Gold and Waste Management use similar words in defining

the minimum standard although the definition used in the award in
Glamis Gold, at first glance, appears to have imposed a higher standard of
wrongdoing:
Glamis Gold Waste Management

Gross denial of justice Grossly unfair, unjust, or idiosyncratic
Manifest arbitrariness Arbitrary
Blatant unfairness Grossly unfair
Complete lack of due process A lack of due process that leads to an outcome that
offends judicial propriety
Evident discrimination Discriminatory and exposes the claimant to section or
racial prejudice
One phrase in Glamis Gold, “a manifest lack of reasons,” does not appear to
have a clear counterpart in the test set out in Waste Management, although
the phrase could be considered as corresponding to unjustness, unfairness, or
arbitrariness, all of which are found in the Waste Management definition. The
tribunal in Glamis Gold reviewed other NAFTA Chapter 11 awards to sup-
port its definition. For example, it cited International Thunderbird in drawing
on phrases “gross denial of justice” and “manifest arbitrariness,” and it looked
to S.D. Myers to support “unjust” or “arbitrary” conduct.190
A close review of the text establishes that the differences between Glamis
Gold and Waste Management tests are not substantial. As the tribunal in
Mondev noted, the standard is not subject to a bright-line test; it is “some-
what open-ended” and “in practice no more precise formula can be offered
to cover the range of possibilities.”191
The reference to a number of broad factors, each involving an ele-
ment of subjectivity, likely means that more claims under Article 1105(1)
will be raised as investors attempt to deal with adverse decisions ema-
nating from state conduct. While the bar for raising legitimate claims is
high, with the NAFTA Chapter 11 arbitral awards, there is a sense that
arbitrators are playing the function of ensuring that nations are adhering
to the international customary law minimum standard. The NAFTA state
parties, in turn, should be focused on the awards and address their respec-
tive judicial, administrative, and legislative processes in light of the awards.
Although arbitral decisions adverse to any of the NAFTA states have been
few, all of the NAFTA Chapter 11 arbitral awards establish relevant and
discernible legal standards, and they reflect reasoned assessments about state
practices.
Process: A More Mature Sense of Precedent and

Its Application to Article 1105(1)
NAFTA Chapter 11 tribunals have been criticized for not being subject to any
form of accountability. Some see them as free to act in secret and apply the law
as they see fit.192 NAFTA acknowledges that a tribunal award is only bind-
ing “between the disputing parties and in respect of the particular case.”193
A panel resolving a specific dispute is not bound to follow a prior decision.
Concerned about the inconsistency in the NAFTA Chapter 11 awards, the
U.S. Congress mandated in 2002 that the principal negotiating objectives of
the United States should include “providing for an appellate body or similar
mechanism to provide coherence to the interpretations of investment provi-
sions in trade agreements.”194 No appellate body has been established either
under ICSID or under the UNCITRAL rules.
Yet NAFTA Chapter 11’s dispute settlement procedure is designed to
ensure “both equal treatment among investors of the Parties in accordance
with the principle of international reciprocity and due process before an
impartial tribunal.”195 Consistency between decisions is a value of the arbi-
tration process.196 The tribunal’s obligation is to render decisions based “on
the facts and by application of any governing treaty provisions.”197 As the
interpretation recognizes, documents concerning the arbitrations are public,
so it is possible to study the decisions of earlier tribunals and to examine the
evidence and written submissions regarding the case.198
Further, the NAFTA defines the law governing a tribunal – NAFTA and
applicable rules of international law. A tribunal is not free to reach beyond
the mandated sources of law. The Article 1105(1) experience demonstrates
that the NAFTA Free Trade Commission will step in and interpret the
NAFTA if guidance is needed, and its interpretation is binding on a tri-
bunal. The Commission keeps tribunals in reasonable check. The tribunals
have followed the interpretation and rejected misguided attempts to ignore
or undermine it.
This author has established in other works the consistency that has
emerged in the Article 1105(1) analysis and that the tribunals have played
an important role in developing a mature jurisprudence.199 Even though the
NAFTA does not require a tribunal to follow the decision of another tribunal,
at least as to Article 1105(1) in the post-interpretation environment, the tri-
bunals have carefully examined and relied on earlier awards in shaping the
jurisprudence. A former lawyer for the U.S. government in the Chapter 11
cases has noted that previous decisions are “persuasive authority.”200 A strict
system of hierarchy and deference is not in place. No specific rule mandates
the arbitrators’ practice of addressing and following or distinguishing prior
cases involving Article 1105(1). In practice, however, the tribunals go beyond

considering prior awards as simply “persuasive.”
Recent NAFTA tribunals have disciplined themselves in their reasoning.
According to Professor Charles Brower, aside from the confusion surround-
ing Article 1105(1), the panels have been remarkably consistent and their
awards “have reached a high level of coherence on many issues.”201 The coher-
ence arguably is due to the arbitrators’ sophistication and the depth of their
understanding of the international legal issues.
An additional factor is the understanding that arbitral tribunals have about
their role in resolving an investor–state dispute. The tribunal in Glamis Gold
focused in detail on its “place” and did so with considerable reflection and
study.202 In the big picture context of NAFTA Chapter 11 disputes, the assess-
ment is critical as it enlightens the public about the role of the tribunal.
Also, the assessment establishes the rules-based nature of the process. The
tribunal described itself as working within “a significant public system of pri-
vate investment protection.”203 The system lacks rules concerning the role of
precedent, but the tribunal has a duty to “communicate its reasons for depart-
ing from major trends present in previous decisions, if it chooses to do so.”204
The tribunal recognized that no appellate tribunal would be overseeing its
work, yet it was subject to a form of de facto review, namely, the work of
future arbitral tribunals that are tackling the same NAFTA investment pro-
tections under review in the pending case.205 Consistency is possible, and
occurs, and the jurisprudence develops because the regime “both looks back-
ward to major trends in past decided disputes and forward toward disputes
that have not yet arise.”206
As noted earlier in the chapter, the tribunal in Glamis Gold drew a line as
to what precedent it should consider, for example, arbitral awards that inter-
preted a treaty provision enforcing the customary international law minimum
standard, and those that it should not follow, for example, arbitral awards that
interpreted an autonomous treaty provision. The distinction is important in
terms of both the result and the rationale. Regarding the latter, if the tribunal
is obligated to define the customary international law minimum standard of
the treatment of aliens, then, according to the tribunal in Glamis Gold, it
should look to only those arbitral awards that were asked to interpret that
standard. Under this analysis, arbitral awards that address other standards,
such as the mere “fair and equitable” one, are not relevant.
Yet the tribunal’s approach in Glamis Gold has an arguably narrow view
of the evolution of custom and the role of arbitral decisions in that process.
In trying to establish the contours of the minimum standard a tribunal could
find relevant State practice and principles as set out in the jurisprudence of
arbitral tribunals. A careful reading is necessary, and ADF so cautioned in
its recognition that the minimum standard is an evolving one that is indeed
disciplined. In fact, the tribunal in Glamis Gold felt comfortable in relying on
Neer as its definitional point for the customary international law minimum
standard. As noted earlier in text, Neer did not purport to look at the mini-
mum standard except in a narrow sense of denial of justice, and even in that
sense, only when it involved the alleged failure of the state to take corrective
measures as to private actors. Neer does not refer to a treaty that imposed the
customary international law minimum standard on Mexico which ultimately
served as the basis of the Commission’s review and award. Glamis Gold had
no problem embracing Neer and that is because, by its own admission, the
NAFTA State Parties had cited it to the tribunal.
Glamis Gold has now recognized a reasonable duty on the arbitrators to
address precedent and explain why it is not being followed when a tribunal
is deviating from an established trend. It has also attempted to establish a
hierarchy of precedent, well advanced and beyond that employed by ear-
lier tribunals. These developments evidence a maturing of the investor-state
arbitration process into a more rules-based system.
Conclusion
More than 15 years have passed since the NAFTA came into effect. During
these years, the Chapter 11 arbitral process has generated some clarity regard-
ing the investment protection obligations of NAFTA State Parties. This is
particularly true regarding the duties under broadly worded Article 1105(1).
The arbitral decisions involving Article 1105(1), when coupled with the
Commission Interpretation, have led to defined parameters that are under-
standable, relatively ascertainable, and reasonable. General principles have
emerged and the tribunals are regularly following and implementing them.
The customary international law minimum standard has set a relatively high
threshold regarding the treatment owed a covered investment. The thresh-
old, however, is not so far removed to be of irrelevance to the NAFTA State
Parties. The arbitral process itself will likely continue to tackle contract and
regulatory matters, and some of the issues will have broad public importance
even beyond the individual NAFTA State.
Notes
1. North American Free Trade Agreement, December 17, 1992, Can.-Mex.-U.S.,
ch. 11, 32 I.L.M. 289, 639 (hereinafter NAFTA Chapter 11).
2. Id. arts. 1115–38.
3. Id. art. 1116(1)(a) (authorizing arbitration of an investor’s claims under

Section A of the NAFTA, which sets forth investment protection standards).
4. See, e.g., Methanex Corp. v. United States, Award (May 23, 2005), 44 I.L.M.
1345 (hereinafter Methanex Award) (examining, inter alia, NAFTA’s expro-
priation standard); Mondev Int’l Ltd. v. United States, ICSID Case No.
ARB(AF)/99/2, Award (October 11, 2002), http://www.state.gov/documents/
organization/14442.pdf (hereinafter Mondev Award) (establishing the param-
eters of the obligation under NAFTA to provide a minimum standard of
treatment).
5. CANACAR v. United States, UNCITRAL Case, Notice of Arbitration (April 2,
2009), http://www.state.gov/documents/organization/121599.pdf (challenging
the U.S. Department of Transportation’s ban of Mexican trucks into the United
States); Apotex, Inc. v. United States, UNCITRAL Case, Notice of Arbitration
(December 10, 2008), http://www.state.gov/documents/organization/115447.
pdf (one of two cases of a Canadian investor Aprotex, Inc. seeking review
of decisions of the U.S. Food and Drug Administration and judgments of
U.S. federal courts); Loewen Group, Inc. v. United States, ICSID Case No.
ARB(AF)/98/3, Award (June 26, 2003), http://www.state.gov/documents/
organization/22094.pdf (hereinafter Loewen Award) (reviewing the conduct of
the courts of Mississippi); Mondev Award, supra note 4 (examining decisions of
the courts of Massachusetts); S.D. Myers, Inc. v. Canada, UNCITRAL Case,
Partial Award (November 13, 2000), http://www.international.gc.ca/trade-
agreements-accords-commerciaux/assets/pdfs/myersvcanadapartialaward_final_
13-11-00.pdf (holding that Canada’s Minister of the Environment’s order
regarding exclusion of PCB exports to the United States violated the NAFTA);
Metalclad Corp. v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (August 30,
2000), 40 I.L.M. 36 (hereinafter Metalclad Award) (assessing the conduct
of Mexican federal and local authorities relating to the issuance of landfill
permits).
6. Bill Moyers, Talking Trade in Secret, Wash. Post, February 23, 2002, at A19
(noting that NAFTA Chapter 11 “has created a private legal system for corpo-
rations that wish to challenge public laws, a system that operates outside the
U.S. court system”). See also Environmentalists in Battle to Be Heard in Pesticide
Case, Toronto Star, April 27, 2009, at A13 (observing that “it will fall to three
arbitrators—one appointed by Dow, one by Canada, and the third by mutual
assent—to determine whether our North American constitution, the NAFTA,
sanctions the actions of the Quebec government”).
7. See infra Section IV and accompanying text. For the role of precedent in
investor-state arbitration in general, see Jeffery P. Commission, Precedent in
Investment Treaty Arbitration—A Citation Analysis of a Developing Jurisprudence,
24 J. Int’l Arb. 129, 135–36 (2007) (documenting “a confluence of conditions
[that] has provided for the development of a jurisprudence and a system of per-
suasive precedent, in ICSID, and other investment treaty arbitrations”); Susan
D. Franck, International Decision: Occidental Exploration & Prod. Co. v. Rep.
of Ecuador, 99 Am. J. Int’l L. 675, 679 (2005) (recognizing that “arbitration

awards technically have no de jure precedential value, [however,] practition-
ers, investors, and states rely upon such decisions as de facto precedents and as
indicators of their potential rights and liabilities”).
8. Susan L. Karamanian, Dispute Settlement under NAFTA Chapter 11: A Response
to the Critics in the United States in Cesare P.R. Romano (ed.), The Sword
and the Scales: The United States and International Courts and Tribunals 395
(2009); Susan L. Karamanian, Beyond Courts: Harmonizing Practice and Prin-
ciples in North America through Investor-State Arbitration, 2 Norteamérica 161
(2007).
9. NAFTA Chapter 11, supra note 1, art. 1120.
10. Id. art. 1131(1).
11. North American Free Trade Agreement, December 17, 1992, Can-Mex.-U.S.,
art. 102(2), 32 I.L.M. 289, 297 (hereinafter NAFTA).
12. Id. art. 102(1)(b),(c).
13. Id. at Preamble.
14. Id. art. 1802.1.
15. See infra notes 20–22 and accompanying text.
16. NAFTA Chapter 11, supra note 1, art. 1105(1).
17. Id. art. 1102.
18. Id. art. 1103.
19. Id. art. 1110.
20. Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Pri-
vatizing Public International Law Through Inconsistent Decisions, 73 Fordham
L. Rev. 1521, 1576–81 (2005). See Charles H. Brower, II, Structure, Legiti-
macy, and NAFTA’s Investment Chapter, 36 Vand. J. Transnat’l L. 37, 66 (2003)
(observing that “incongruity has become the hallmark of decisions involving
the minimum standard of treatment set forth in Article 1105(1)”).
21. See Brower, supra note 20, at 66–67 (establishing the “doctrinal incoherence”
of the panels’ decisions interpreting Article 1105(1)).
22. Franck, supra note 20, at 1583.
23. Metalclad Award, supra note 5.
24. Id. at 101.
25. Id. at 99.
26. 544 U.S. 431 (2005).
27. Id. at 452–53.
28. Id. at 448–49.
29. Wyeth v. Levine, 555 U.S. 555 (2009).
30. Id. at 561–62; 581.
31. Id. at 604 (referring to Geier v. American Honda Motor Co., 529 U.S. 861
(2000)).
32. 557 U.S. 261, 129 S.Ct. 2458, 174 L.Ed.2d 193 (2009).
33. 129 S.Ct. at 2463.
34. Id.
35. The Commission, cabinet-level officials or their designees, “shall . . . (c) resolve
disputes that may arise regarding [the NAFTA’s] interpretation or application.”
NAFTA, supra note 11, art. 2001(1), (2)(c).
36. NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11
Provisions (July 31, 2001), http://www.dfait-maeci.gc.ca/tna-nac/NAFTA-
Interpr-e.asp [Interpretation].
37. NAFTA Chapter 11, supra note 1, art. 1131(2).
38. Interpretation, supra note 36, § B.1.
39. Id. § B.2.
40. Id. § B.3. The Interpretation also recognized the NAFTA does not impose a
general duty of confidentiality on Chapter 11 arbitrations. Id. § A.1, 2.a. Public
access to documents submitted to or issued by the tribunal is in order except in
limited circumstances. Id. § A.1, 2.a,b.
41. See, e.g., Treaty Between the Government of the United States of America
and the Government of [Country] Concerning the Encouragement and Recip-
rocal Protection of Investment, http://www.state.gov/documents/organization/
117601.pdf [hereinafter U.S. Model BIT]; U.S.-Chile Free Trade Agreement,
June 6, 2003, http://www.ustr.gov/trade-agreements/free-trade-agreements/
chile-fta/final-text [hereinafter U.S.-Chile FTA]; Uruguay Treaty Concern-
ing the Encouragement and Reciprocal Protection of Investments, 44 I.L.M.
268 [hereinafter U.S.-Uruguay BIT]. Since the completion of this chapter,
the United States has released the 2012 Model BIT, which did not make
any changes to Article 5. For a discussion of the minimum standard in the
NAFTA and FTAs, see David A. Gantz, The Evolution of FTA Investment Pro-
visions: From NAFTA to the United States-Chile Free Trade Agreement, 19 Am.
U. Int’l L. Rev. 679 (2004).
42. See, e.g., U.S. Model BIT, supra note 41, art. 5(1); U.S.-Chile FTA, supra note
41, art. 10.4(1); U.S.-Uruguay BIT, supra note 41, art. 5(1).
43. See, e.g., U.S. Model BIT, supra note 41, Annex A Customary International
Law; U.S-Chile FTA, supra note 41, Annex A Customary International Law;
U.S.-Uruguay BIT, supra note 41, Annex A Customary International Law.
44. See, e.g., U.S. Model BIT, supra note 41, Annex A Customary International
Law; U.S-Chile FTA, supra note 41, Annex A Customary International Law;
U.S.-Uruguay BIT, supra note 41, Annex A Customary International Law.
45. U.S.-Uruguay BIT, supra note 41, art. 5.2(a). The language mirrors article
5.2(a) of the U.S. Model BIT. See U.S. Model BIT, supra note 41, art. 5.2(a).
46. U.S.-Uruguay BIT, supra note 41, art. 5.2(b). See also U.S. Model BIT, supra
note 41, art. 5.2(b).
47. According to Professor David Gantz, “[e]ven if everyone agrees that ‘fair and
equitable treatment’ in Article 1105 means the standard required by ‘customary
international law’, it still needs to be determined exactly what that means.”
David A. Gantz, International Decision: Pope & Talbot, Inc. v. Canada, 97 Am.
J. Int’l L. 937, 949–50 (2003).
48. Elihu Root, President’s Address, ASIL Pro. 21 (April 28–30, 1910).
49. Ian Brownlie, Principles of Public International Law 502–05 (6th ed. 2003). See
also Gus Van Harten, Investment Treaty Arbitration and Public Law 87 (2008)
(noting that “the minimum standard is stated in ambiguous terms” and that
“the meaning of terms like ‘unfair’ and ‘inequitable’ in the acts and decisions of
governments does not exactly leap from the page”).
50. Richard B. Lillich, The Current Status of the Law of State Responsibility for Injuries
to Aliens in International Law of State Responsibility for Injuries to Aliens 2–3
(Richard B. Lillich ed., 1983).
51. See id. at 4; Brownlie, supra note 49, at 497; Frank Griffith Dawson & Ivan
L. Head, International Law National Tribunals and the Rights of Aliens 2–3
(1971).
52. See, e.g., M. Sornarajah, The Settlement of Foreign Investment Disputes
138–46 (2000).
53. Methanex Corp. v. United States, Second Opinion of Professor Sir Robert
Jennings, 1–2, http://naftaclaims.com/Disputes/USA/Methanex/Methanex
ResubAmendStateClaimAppend.pdf (emphasis in original).
54. Dawson, supra note 51, at 5 (quoting F. Dunn, The Protection of Nationals 54
(1932)).
55. See, e.g., Jan Paulsson, Denial of Justice in International Law 15 (2005).
56. James Crawford, The International Law Commission’s Articles on State
Responsibility: Introduction, Text and Commentaries 14–15 (2002) (noting
that the ILC Articles on State Responsibility concern secondary rules of state
responsibility, “the framework law of State responsibility . . . without going into
the content of these obligations”).
57. Louis B. Sohn & R.R. Baxter, Convention on the International Responsibility of
States for Injuries to Aliens in F.V. Garcia-Amador, Louis B. Sohn & R.R. Baxter,
Recent Codification of the Law of State Responsibility for Injuries to Aliens 133
(1974).
58. Mondev Award, supra note 4, at 96.
59. See, e.g., Alwyn v. Freeman, The International Responsibility of States for
Denial of Justice 52–57 (1970) (discussing the practice of allowing “an
individual who was wronged in a strange land and who had there been
unable to obtain reparation for this injury from the local sovereign” to
“initiate forceful measures to obtain that justice which had been refused
him”).
60. Paulsson, supra note 55, at 14.
61. See supra note 41 and accompanying text.
62. Edwin Borchard, The Diplomatic Protection of Citizens Abroad 330
(1915).
63. See supra note 41 and accompanying text.
64. Paulsson, supra note 55, at 205–06.
65. Mondev Award, supra note 4, at 115 (noting that “the Neer case, and other sim-
ilar cases which were cited, concerned not the treatment of foreign investment
as such but the physical security of the alien”).
66. Jan Paulsson & Georgios Petrochilos, Neer-ly Misled ?, 22 ICSID Rev. 242
(2007). See also Mondev Award, supra note 4, at 115 (recognizing that “[i]n
general, the State is not responsible for the acts of private parties, and only in
special circumstances will it become internationally responsible for a failure in
the conduct of the subsequent investigation”).
67. United States (L.F. Neer) v. Mexico (U.S.-Mex. General Claims Comm’n Octo-
ber 15, 1926), 4 R.I.A.A. 60, 3 ILR 213 (1927). See also Government of
Canada Counter-Memorial (Phase 2), Pope & Talbot, Inc. v. Canada (Octo-
ber 10, 2000) at 212, 238, 266, 309, http://www.dfait-maeci.gc.ca/tna-nac/
documents/B-2.pdf; Mondev Award, supra note 4, at 114.
68. Paulsson & Petrochilos, supra note 66, at 247.
69. See, e.g., Mondev Award, supra note 4, at 115, 127; Waste Management Inc.
v. Mexico, Award at 93, 98 (April 20, 2004), 43 I.L.M. 967 (hereinafter Waste
Management Award).
70. Metalclad Award, supra note 5, at 99–101, 131 (holding Mexico liable
because “Metalclad was not treated fairly or equitably”). The Supreme
Court of British Columbia set aside the award in Metalclad as to this
article 1105(1) finding. See Mexico v. Metalclad. 2001 B.C.S.C. 664,
available at http://www.investmentclaims.com/decisions/Metalclad-Mexico-
BCSCReview-2May2001.pdf.
71. Methanex Corp. v. United States, Second Amended Statement of Claim
(November 5, 2002), http://www.state.gov/documents/organization/15035.
pdf. The tribunal in Methanex denied relief to the Canadian investor. See infra
notes 144–47 and accompanying text.
72. Glamis Gold Ltd. v. United States, Notice of Arbitration (December 9, 2003),
www.state.gov/documents/organization/27320.pdf. The tribunal in Glamis
Gold denied relief to the Canadian investor. See infra notes 165–86 and
accompanying text.
73. Grand River Enterprises Six Nations, Ltd. v. United States, Notice of Arbi-
tration (March 10, 2004), www.state.gov/documents/organization/30961.pdf.
The case was decided in favor of the United States after this chapter was written.
74. ADF Group, Inc. v. United States, Notice of Arbitration (July 19, 2000), at www.
state.gov/documents/organization/3351.pdf. The tribunal in ADF denied relief
to the Canadian investor. See infra notes 124–29 and accompanying text.
75. Loewen Award, supra note 5 (denying relief to the Canadian investor).
76. Mondev Award, supra note 4 (denying relief to the Canadian investor).
77. Clayton v. Canada, Notice of Arbitration (January 30, 2009), http://www.
international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/Bilcon
NoticeofArbitration.pdf.
78. Compton Corp. v. Canada, Notice of Arbitration (October 17, 2002), http://
www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/
CromptonCorpdoc4.pdf. Chemtura Corp, which purchased Compton Corp.
after the filing of the notice of arbitration, pursued the case. On August 2,
2010, an award was issued denying relief to the investor on all claims.
79. Dow Agrosciences LLC v. Canada, Notice of Arbitration (August 25, 2008),
http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/
pdfs/DowAgroSciencesLLC-2.pdf. The case settled.
80. See infra Section II.B.3.
81. Apotex Inc. v. United States, Notice of Arbitration (June 4, 2009), http://www.
state.gov/documents/organization/125291.pdf (herein Apotex-Bristol Myers);
Apotex Inc. v. United States, Notice of Arbitration (December 10,
2008), http://www.state.gov/documents/organization/115447.pdf (hereinafter
Apotex-Pfizer).
82. 21 U.S.C. §§ 301 et seq.
83. Id. § 355(j)(2)(A)(vii).
84. Id. § 355(j)(2)(B), (j)(5)(B)(iii).
85. Id. § 355(j)(5)(B)(iii).
86. Id. § 355(j)(5)(B)(iv).
87. Id.
88. Martin A. Voet, The Generic Challenge 61–79 (2005).
89. David E. Korn, et al., A New History and Discussion of the 180-Day Exclusivity,
64 Food Drug L. J. 335, 335 (2009).
90. Bruce R. Genderson, Settlements in Hatch-Waxman Act Patent Litigations:
Resolving Conflicting Intellectual Property and Antitrust Concerns, 3 Sedona Conf.
J. 43, 46–47 (2009).
91. Id.
92. Apotex-Bristol Myers, supra note 81.
93. Apotex-Pfizer, supra note 81.
94. Apotex-Bristol Myers, supra note 81, at 51–53.
95. Id. at 55; Apotex, Inc. v. FDA, 449 F.3d 1249, 1251 (D.C. Cir. 2006).
96. Apotex, 449 F.3d at 1251.
97. Id.
98. Id. at 1243–54.
99. Apotex-Bristol Myers, supra note 81, at 71–73.
100. Apotex, Inc. v. Pfizer Inc., 385 F. Supp.2d 187 (S.D.N.Y. 2005).
101. Apotex-Pfizer, supra note 81, at 48.
102. Id. at 61–63. The U.S. Court of Appeals for the Federal Circuit and the U.S.
Supreme Court refused to grant relief to Apotex. Id. at 51–55.
103. See, e.g., NAFTA Chapter 11, supra note 1, art. 1136(1) (stating that “[a]n
award made by a Tribunal shall have no binding force except between the dis-
puting parties and in respect of the particular case”). See also infra at section
IV (discussing a system of de facto precedent in the NAFTA Chapter 11
cases).
104. 39 I.L.M. 537 (2000) (hereinafter Azinian Award).
105. Id. at 99 (emphasis in original). Jan Paulsson, the author of the recent definitive
work on denial justice, was president of the tribunal in Azinian. Id.
106. Id.
107. Id. at 102. The decision also refers to a “fourth type of denial of justice,” which
is the “clear and malicious misapplication of the law.” Id. at 103. The opinion’s
reference to “fourth type” is confusing as it appears to authorize a violation of
international law for misapplication of domestic law. Cf. infra notes 123, 128
and accompanying text. The line between domestic and international conduct
thus may not be so clear.
108. Metalclad Award, supra note 5, at 99.
109. Id. As noted, the Supreme Court of British Columbia set aside, in part, the
Metalclad award. See supra note 70.
110. Pope & Talbot Inc. v. Canada, Award on the Merits of Phase 2
(April 10, 2001), http://www.investmentclaims.com/decisions/Pope-Canada-
Award-10Apr2001.pdf. After the award was issued, and after issuance of the
Interpretation, the tribunal issued a separate opinion on damages. Applying
the Interpretation, which the tribunal assumed set a high standard amount-
ing to “shock and outrage,” it awarded substantial relief to the investor. The
conduct concerned Canada Softwood Lumber Division’s “threats and misrepre-
sentations.” See Pope & Talbot Inc v. Canada, Award in Respect of Damages
(May 31, 2002), http://www.investmentclaims.com/decisions/Pope-Canada-
Damages-31May2002.pdf.
111. Mondev Award, supra note 5.
112. Id. at 1. The Massachusetts Supreme Court had affirmed the lower court. Id.
113. Id.
114. Id. at 126.
115. Id. at 124–25.
116. Id. at 125.
117. Id. at 126 (noting that “[i]t is one thing to deal with unremedied acts of the
local constabulary and another to second-guess the reasoned decisions of the
highest courts of a State”).
118. Id. at 127 (quoting Elettronica Sicula S.p.A. (ELSI) (United States v. Italy), ICJ
Reports 1989, 15, 76).
119. Id.
120. Id. at 135.
121. Id. at 136.
122. Id.
124. ADF Group, Inc. v. United States, Award, ICSID Case No. ARB(AF)/00/1 (Jan-
uary 9, 2003), www.state.gov/documents/organization/16586.pdf (hereinafter
ADF Award).
125. Id. at 189.
126. Id.
127. Id. at 190.
128. Id. (emphasis in original). As the tribunal further noted, “[w]e do not sit as a
court with appellate jurisdiction with respect to the U.S. measures.” Id.
129. Id.
130. Loewen Award, supra note 5.
131. A Loewen family member later claimed the opinion was incorrect as he is
Canadian. The panel held its earlier dismissal included a dismissal on the
merits as to the family member and his claim. See Loewen Group, Inc. v. United
States, ICSID Case No. ARB(AF)/98/3, Decision on Respondent’s Request for
a Supplementary Decision issued September 13, 2004, http://www.state.gov/
documents/organization/36260.pdf.
132. Loewen Award, supra note 5, at 119.
133. Id. at 137.
134. Id. at 132.
135. Id. at 168, 217.
136. Id. at 217.
138. Waste Management Inc. v. Mexico, Award (April 20, 2004), 43 I.L.M. 967
(hereinafter Waste Management Award).
139. Id. at 70.
140. Id at 70, 122. The city also objected to the arbitration on the ground that the
contract, as a public contract, was subject to the jurisdiction of administrative
courts, and it had sought to stop the arbitration. Id.at 120–21.
141. Id. at 98 (emphasis added). The tribunal cited Mondev and ADF with favor and
noted that these awards “rejected any suggestion that the standard of treatment
of a foreign investment set by NAFTA is confined to the kind of outrageous
treatment referred to in the Neer case.” Id. at 93.
142. Id. at 130.
143. Id. at 123.
144. Award (May 23, 2005), 44 I.L.M. 1345.
145. Id. Part IV-Chapter C Article 1105 NAFTA at 14, 16 (noting that Article
1105(1), even pre-Interpretation, does not address discrimination and “it would
be wrong for a tribunal to pretend that” the NAFTA parties incorporated a
non-discrimination provision).
146. Id. at 25.
147. Id. at 26. The opinion noted the tribunal in Waste Management referred to
“discriminatory” conduct but required that it be coupled with an exposure “to
sectional or racial prejudice.” Id. The tribunal in Methanex did not tackle the
more challenging issue, e.g., Waste Management award’s inclusion of discrimina-
tory conduct as violating the customary international law minimum standard,
as it had held there was no discriminatory conduct. Id.
148. International Thunderbird Gaming Corp. v. Mexico, Award (January 26, 2006),
http://www.investmentclaims.com/decisions/Thunderbird-Mexico-
Award.pdf (hereinafter Thunderbird Award).
149. Id. at 50–78.
150. Id. at 73.
151. Id. at 80.
152. Id. at 194.

153. Id. at 198.
154. Id. at 200.
155. Id.
156. Id. at 201.
157. Award (November 15, 2004), http://www.state.gov/documents/organization/
38789.pdf (hereinafter GAMI Award).
158. Id. at 13, 16–17.
159. Id. at 20.
160. Id. at 24(A). The expropriation claim was given short shrift as the U.S.
investor’s shares were not expropriated. Instead, the Mexican company, which
had its sugar mills expropriated, received relief under Mexican law for the
expropriation. Id. at 116–33.
161. Id. at 86.
162. Id. at 104.
163. Id. at 95–101.
164. Id. at 110.
165. Glamis Gold, Ltd. v. United States, UNCITRAL Case, Award (June 8, 2009),
http://www.state.gov/documents/organization/125798.pdf (hereinafter Glamis
Gold Award).
166. Id. at 10.
167. Id.
168. Id. at 11.
169. Id. at 633.
170. Id. at 136–46.
171. Id. at 633–39.
172. Id. at 640–44.
173. Id. at 645–50.
174. Id. at 677–713.
175. Id. at 824–29.
176. Id. at 601. Interestingly, the Neer decision did not use the terms “egregious” or
“shocking.” See Neer, supra note 67 and accompanying text. For Mexico’s posi-
tion on Neer compare Glamis Gold Award, supra note 165, at 601 (recognizing
that Mexico accepts that the minimum standard is relative) with 612 (acknowl-
edging that “[i]t appears to this Tribunal that the NAFTA State Parties agree
that, as at minimum, the fair and equitably treatment standard articulated in
Neer”).
177. Id. at 608, 611.
178. Id. at 613.
179. Id.
180. Id. at 616.
181. Id.
182. Id. at 762.
183. Id. at 762–65.
184. Id. at 762.

185. Id. at 766–67.
186. Id. at 826–29.
189. See supra note 118. The tribunal in Glamis Gold noted that the tribunal in
Mondev referred to “shock or surprise.” Glamis Gold Award, supra note 165, at
614.
190. Id. at 614.
191. Mondev, supra note 4, at 127.
192. See, e.g., Statement of Thea M. Lee, Assistant Director for International Eco-
nomic Policy, AFL-CIO, U.S. Senate Finance Committee, May 13, 2003, available
at LEXIS/NEXIS News File (stating that NAFTA Chapter 11 “[p]anel hear-
ings are secret, panel members often unknown, and panel decisions not always
published”).
193. NAFTA, supra note 1, art. 1136(1). See also Grand River Enter. Six Nations,
Ltd. v. United States, Decision on Objections to Jurisdiction (July 20, 2006)
at 36, http://www.investmentclaims.com/decisions/GRE-U.S.A-Jurisdiction.
pdf (stating that “NAFTA arbitral awards do not constitute binding precedent,
and in any event are rooted in their specific facts”).
194. Trade Act of 2002, Pub. L. No. 107–210, 2102, 116 Stat. 933, 994 (2002). See
Dana Krueger, Note: The Combat Zone: Mondev International, Ltd. v. United
States and the Backlash Against NAFTA Chapter 11, 21 B.U. Int’l L. J. 399, 423
(2003).
195. NAFTA Chapter 11, supra note 1, art. 1115.
196. See, e.g., Canfor Corp. v. United States, Order on Consolidation (September 7,
2005), http://www.state.gov/documents/organization/53113.pdf at 131 (order-
ing consolidation to promote the NAFTA goal of avoiding conflicting results).
197. Mondev Award, supra note 4, at 118.
198. See supra note 40 and accompanying text. See also Jack J. Coe, Jr., The State of
Investor-State Arbitration—Some Reflections on Professor Brower’s Plea for Sensible
Principles, 20 Am. U. Int’l L. Rev. 929, 941 (2005) (noting that the fact “invest-
ment awards are more quickly becoming public may also play a moderating
role” in the decisions of the tribunals).
200. Andrea K. Bjorklund, NAFTA Chapter 11: Contract Without Privity: Sovereign
Offer and Investor Acceptance, 2 Chi. J. Int’l L. 183, 186 (2001).
201. Brower, supra note 20, at 66. See also id. at 64 (noting most panels “have devel-
oped clear rules that strike a healthy balance between the interests of foreign
investors with the regulatory obligations of the host states”).
202. Glamis Gold Award, supra note, 165 at 3–9.
203. Id. at 5.
204. Id. at 8. The tribunal also quoted from the separate opinion of the late Professor
Thomas Wälde in International Thunderbird, in which he acknowledged that
“ ‘precedent has been recognised de facto in the reasoning style of tribunals, but
can also be formally inferred from Art. 1131(1) of the NAFTA.’ ” Id. (quoting
International Thunderbird Award, supra note 148, at 129).
205. Id. at 8 n.7.
206. Id.
CHAPTER 6
The Strict Subsidiarity Principle under

NAFTA Law and Policy: Implications
for North American Tax Policy
Arthur J. Cockfield
Introduction
Canada, the United States, and Mexico formed the North American Free
Trade Agreement (NAFTA) to promote their economic interests by reducing
barriers to international trade and investment. A concern exists that differ-
ent national tax systems can inhibit these cross-border flows. Yet NAFTA is
almost silent with respect to tax measures: as will be explored, the tax treat-
ment of cross-border transactions and investments is generally governed by
bilateral tax treaties negotiated between each NAFTA country.
The North American governments took care not to restrict their tax poli-
cies via NAFTA because these policies are thought to play an important role
in pursuing distinct social and economic policy agendas. Thus the govern-
ments chose to “carve out” tax measures from NAFTA to preserve their
sovereign right to maintain tax differences—despite the growing economic
cost of doing so. This chapter discusses why these governments should bor-
row and modify a European Union concept—the subsidiarity principle—to
encourage more cross-border cooperation to reduce the harmful impacts
of tax and other differences on cross-border economic interests, while still
preserving each country’s control over tax policy.
According to the subsidiarity principle enshrined within the European
Union’s (EU) Treaty of Rome since 1992, the EU may enact only those
laws where its member states agree that action of individual countries is

126 ● Arthur J. Cockfield
insufficient. More technically, Article 3b(3) of the Treaty of Rome (consol-

idated version following the Treaty of Lisbon of 2007) now reads: “Under
the principle of subsidiarity, in areas which do not fall within its exclusive
competence, the Union shall act only if and insofar as the objectives of the
proposed action cannot be sufficiently achieved by the Member States, either
at central level or at regional and local level, but can rather, by reason of the
scale or effects of the proposed action, be better achieved at Union level.”1
NAFTA does not explicitly set out a similar principle nor does it, in other
than exceptional cases, contain mechanisms to promote harmonized laws
among the North American governments: in fact, the Treaty of Rome of
1957 called for more centralized legal and governance structures than the
NAFTA deal of 1994.
Nevertheless, the mandate of NAFTA, emerging tribunal decisions, and
other factors call for the adoption of a “strict” version of the subsidiarity
principle. Under a strict subsidiarity principle, the NAFTA countries should
cooperate to coordinate (instead of unify or harmonize) legal rules that act
as barriers to cross-border flows of goods, services, or investments, but only
to the extent that the core objectives of NAFTA cannot be achieved by the
unilateral actions of the member states or through the workings of market
forces.
By following a strict subsidiarity principle, NAFTA governments can con-
tinue to “compete” with their tax and regulatory regimes while taking steps
to reduce the risk that this competition will lead to adverse spillover effects
that harm the economic interests of these governments. With respect to tax
policy, a strict subsidiarity principle encourages the NAFTA governments to
develop modest centralized tax institutions to engage in heightened multilat-
eral coordination to ensure the harmful policy consequences of maintaining
different national tax regimes is minimized.
This chapter is organized as follows. Part II begins by briefly discussing
the EU’s institutional/legal support for the harmonization of laws as well as
the perceived need for a subsidiarity principle to address political sovereignty
concerns. In contrast to the EU developments, NAFTA contains very little
institutional support to encourage harmonization. Nevertheless, a strict ver-
sion of the subsidiarity principle can be discerned from the current political
reality of North America, the NAFTA deal itself, as well as theoretical per-
spectives on the value of regulatory and tax competition among governments.
Part III shows how NAFTA’s legal regime governing cross-border tax issues,
the deferral by NAFTA to existing bilateral tax treaties, and two NAFTA tri-
bunal decisions dealing with tax issues similarly support the notion of a
strict subsidiarity principle to guide the formulation of North American tax
policy.
The Strict Subsidiarity Principle under NAFTA Law and Policy ● 127
Contrasting EU and NAFTA Laws and Principles

The Subsidiarity Principle within the European Union
From its inception, regional economic integration in Europe has gradually
deepened to the point where the Treaty of Rome has been recognized in a case
by the European Court of Justice (ECJ) as “the basic constitutional charter” of
the European Union.2 In 1992, Europe was transformed from the European
Community into the European Union by the Single European Act 3 continuing
the movement toward greater economic and social integration.
This transformation, however, was not accomplished without some diffi-
culty. In fact, as detailed elsewhere, European integration was characterized
by fits and starts with periods of stagnation over the past 50 years.4 Between
1958 and 1972, the ECJ took upon itself an active role in “constitutional-
izing” the Treaty of Rome to preserve the drive toward regional economic
integration. The ECJ’s actions led to a loss of political control, leading to a
greater reluctance on the part of the European countries to cede decision-
making to supranational bodies such as the European Commission and
created an environment of political stagnation in European integration from
1973 to the mid-1980s.
The deadlock was finally broken with the development of the principle
called subsidiarity.5 As mentioned at the outset of this chapter, Article 3b(3)
of the Treaty of Rome (consolidated version following the Treaty of Lisbon
of 2007) now reads: “Under the principle of subsidiarity, in areas which do
not fall within its exclusive competence, the Union shall act only if and inso-
far as the objectives of the proposed action cannot be sufficiently achieved
by the Member States, either at central level or at regional and local level,
but can rather, by reason of the scale or effects of the proposed action, be
better achieved at Union level.”6 A protocol within the Treaty of Rome elabo-
rates on the ways that EU institutions shall apply the principle of subsidiarity
(as well as a related principle of proportionality).7 The subsidiarity prin-
ciple expresses the idea that the central European Commission authorities
should not prescribe comprehensive rules but should restrict themselves to
measures that are indispensable to the functioning of the internal market,
which was defined in the Single European Act as “an area without internal
frontiers in which the free movement of goods, persons, services and capital
is ensured.”8
To assist with accomplishing this goal, Article 100 of the Treaty of Rome
calls for the harmonization of the laws of the EU countries that “directly
affect the establishment or functioning” of the single market. Harmonization
efforts were initially directed at attempting to create uniform technical reg-
ulations. Under the subsidiarity principle, proposals were to focus on steps
that could not be taken by the EU countries themselves or that were unlikely
to be generated by market forces.9 A result of this change was a revitalized
Commission with an active political role in moving forward the integration
agenda.
European Union Versus NAFTA Institutional/Legal Support

The Treaty of Rome created significant centralized institutions with the power
to adjudicate and legislate. The European Commission, the European Coun-
cil of Ministers, the ECJ, and the European Parliament are all charged with
bringing to life the legislative aspirations of the treaty. Some of these bodies
assist in taking a general notion such as greater tax coordination and imple-
menting detailed plans. The ECJ’s decisions, which promulgated the idea that
these centralized institutions have legal authority over national institutions,
assisted in the process of ceding authority to supranational bodies with the
power to make and implement laws.
As a free trade area rather than a customs union like the EU,
NAFTA requires much less institutional support as its objectives are less
ambitious. For example, a free trade area does not attempt to create the free
movements of goods, services, labor, or capital unlike a customs union. The
major NAFTA institutions hence exist as a setting for consultation and coop-
eration among the NAFTA countries. The negotiators of NAFTA apparently
took great care to avoid granting to any centralized body the power to make
decisions that would directly bind NAFTA countries, despite the potential
economic benefits of doing so.10
Section A of NAFTA, Chapter 20, establishes the basic institutional frame-
work by creating the Free Trade Commission and the Secretariat. The Free
Trade Commission is comprised of cabinet-level officers of the NAFTA coun-
tries or their appointees and is charged with supervising the implementation
and overseeing the elaboration of NAFTA. This structure is supplemented
by various committees and working groups created under NAFTA pro-
visions covering specific sectors. The Secretariat is comprised of national
sections with permanent offices to assist the Free Trade Commission and pro-
vide administrative assistance to dispute resolution panels, committees, and
working groups.
The Free Trade Commission, pursuant to Article 2001 of the NAFTA,
shall “consider any other matter that may affect the operation of this Agree-
ment” and “take such other action in the exercise of its functions as the Parties
may agree.” Any “action” not set out in the text of NAFTA must be agreed
upon by the NAFTA countries. As noted by Abbott, this acts as a limitation
of the Free Trade Commission’s ability to expand its own authority.11
Moreover and as mentioned, the Treaty of Rome sets as a goal the har-
monization of laws directly affecting the establishment or functioning of the
single market. This goal was the impetus for a number of substantial har-
monization efforts including the development of common EU value-added
taxes (Canada and Mexico maintain different value-added taxes, while the
United States does not maintain a federal consumption tax). In contrast,
NAFTA goals are more modest and focus on the progressive elimination
of tariff and non-tariff barriers to trade in goods and the establishment of
reciprocal national treatment obligations with respect to trade in services and
investment. Although there are certain provisions that deal with approximat-
ing regulations for health and technical standards (e.g., sanitary and phy-
tosanitary measures), NAFTA does not create any obligation to harmonize
and does not give power to any institution to mandate harmonization.
Strict Subsidiarity Principle under NAFTA

This section discusses certain factors that support the adoption of a “strict”
version of the subsidiarity principle to guide the formulation of NAFTA law
and policy developments, including (i) the historical, political, and social real-
ities of North America; (ii) the existing institutional and legal framework of
NAFTA, including the mandate of the NAFTA agreement itself; and (iii) the
implicit support for the value of regulatory competition among governments
for cross-border factors of production such as investment, at least when com-
pared to the somewhat more hostile EU vision of these competitive processes.
The section concludes by noting that, in comparison to the EU’s subsidiarity
principle, the proposed strict subsidiarity principle requires more deference
to market forces, coordination of legal regimes versus harmonization, and the
use of nonbinding institutions to promote the attainment of NAFTA’s core
objectives.
1. The Historical, Political, and Social Realities of North America

The reasons that drove the North American governments to negotiate
NAFTA have been detailed extensively elsewhere.12 Briefly, the impetus for
initiating the negotiation was primarily economic for all of the NAFTA part-
ners, although other concerns such as labor standards, labor migration
(including illegal migration from Mexico to the United States), and environ-
ment standards played a role. For a number of historical reasons, the North
American governments are extremely reluctant to forego political sovereignty
to promote heightened economic or social integration. Relations with the
United States often dominate Canadian and Mexican public and foreign pol-
icy, in part because U.S. legal reforms efforts can have significant spillover
effects on the economies of its neighbors. Yet both Canada and Mexico are
very sensitive to any measures that would be viewed as impinging on their
cultural identity and perceived political distinctiveness.
In contrast, although Canada and Mexico are, respectively, the first and
second most important trade partners of the United States, their needs are
generally subordinate to the domestic or international agenda of the United
States. Moreover, there is a certain “go it alone” sentiment within certain U.S.
political circles that is less apparent in the other two NAFTA countries, which
are more likely to believe their standards of living are tied to export strategies.
Finally, since 9/11, an emphasis on border security as well as fears over
international terrorism has led to policies that have increased barriers to cross-
border flows of goods, services, and other resources. Consider the impact of
different national legal regimes governing the private sector collection, use
and disclosure of personal information. Each NAFTA country maintains a
very different approach to regulating personal information collected by indus-
try: Mexico has minimal legislation in place, the United States regulates at the
federal level on a sectoral basis (e.g., financial and health information), while
Canada introduced comprehensive legislation in this area through the Per-
sonal Information Protection and Electronic Documents Act (PIPEDA) that
came into full effect in 2001.13
Since 9/11, a concern has been expressed that personal information
involving Canadians transferred across the border to U.S. businesses may
be accessed by U.S. authorities under new antiterrorism laws such as the
Patriot Act: this action would violate PIPEDA, which requires an individ-
ual’s consent before personal information can be disclosed (or requires due
process protections, unavailable when state agents access this information
without the need to inform the data subject).14 As a result, the interaction
of the different legal regimes coupled with the new antiterrorism laws may
inhibit cross-border flows of personal information to the extent that this legal
issue remains unresolved (as subsequently touched on, resolving the prob-
lem through harmonized privacy laws is not feasible in the North American
context).
In summary and consistent with the views of other observers, the reality
of current political dynamics within North America suggests that the North
American governments will pursue only modest and incremental changes to
their trade and investment agreement.15 The question remains how should
the deal move forward to better achieve its objectives for freer trade and
investment within North America? Pastor suggests that potential changes
should be guided by three factors: (1) “pragmatism” that focuses on problem-
solving instead of grand constitutional changes; (2) “market and rules,” where
proposed changes should respect the ability of markets to drive efficient
solutions as long as rules constrain abusive actions by market actors; and

(3) “modest institutions” that are not overly bureaucratic and focus on advi-
sory mechanisms rather than supranational institutions with the power to
bind NAFTA governments.16 These views are consistent with the adoption of
a strict subsidiarity principle to assist with the formulation of North American
legal and policy developments.
2. NAFTA Legal/Institutional Framework

It is clear that the framers of NAFTA took care to avoid creating centralized
institutions that would transfer governmental authority to supranational bod-
ies.17 At first glance, the institutions under NAFTA appear consistent with
the individual goals of the NAFTA countries to seek a closer economic union
without surrendering sovereignty to international organizations. Yet Article
102(1) of NAFTA lists as one of its main objectives: “establish a framework
for further trilateral, regional and multilateral cooperation to expand and
enhance the benefits of this Agreement” (author’s emphasis). Article 102(2)
then indicates that the NAFTA governments “shall interpret and apply the
provisions of this Agreement in the light of its objectives . . . and in accordance
with the applicable rules of international law.”
Under one view, NAFTA’s “skeletal institutional structure” has impeded
the attainment of its core objectives.18 A lack of institutions reduces the
opportunities for the NAFTA countries to reach a consensus on possible
reform efforts and, from a new institutional economics perspective, may
increase costs associated with solving common problems.19 The institu-
tional setting of NAFTA is therefore not very conducive toward producing
greater levels of regional economic integration that will benefit the citi-
zens and residents of the NAFTA countries. As a result, recommendations
have been offered to strengthen this institutional structure, ranging from
modest targeted improvements in areas such as labor or dispute resolu-
tion20 to more ambitious reforms that contemplate the development of
a NAFTA advisory commission, a NAFTA development fund to address
regional economic disparities, a North American permanent court for trade
and investment matters, and movement toward the adoption of a common
currency.21
Article 102’s call for heightened cooperation to expand the benefits as
well as the mandate to interpret NAFTA in light of its core objective along
with an (admittedly fuzzy) plea to incorporate international law mechanisms
(such as EU’s subsidiarity principle) would all seem to support the adoption
of a strict subsidiarity principle. Under this view, the NAFTA governments
should consider the development of more effective institutions that will serve
as fora to explore areas of commonality as well as to address concerns of each
NAFTA country, but only to the extent that market forces or the unilateral
actions of each member state cannot effectively achieve the core objectives.
3. Perspectives on Regulatory and Tax Competition

Regulatory competition has been defined as “the alteration of national regu-
lation in response to the actual or expected impact of internationally mobile
goods, services or factors on national economic activity.”22 There are dif-
ferent perspectives within the literature (mainly developed by economists)
on whether competition among governments via their tax and/or regulatory
regimes will lead to a “race to the bottom,” which generally refers to adverse
economic or social outcomes associated with competition among govern-
ments, or a “race to the top,” which refers to more optimal policy results
that would be obtained through this competitive process.23
Early work in the field is often traced back to Charles Tiebout’s ground-
breaking article in 1956 on “A Pure Theory of Local Expenditure” that the-
orized competition among U.S. municipal governments for workers would
tend to promote beneficent outcomes, namely, an optimal level and mix of
taxes and spending as workers “voted with their feet” by moving to the city
that best reflected their tax preferences. One of the first shots fired hence
supported the view that government competition would lead to a race to
the top.
Later tax theorists such as Wallace Oates deflated the earlier and more
optimistic view by asserting that government competition for mobile factors
such as capital might in fact lead to a race to the bottom as each government
responded by lowering its taxes to such a point that they would be unable
to fund needed government services. Since that time the theoretical literature
on regulatory and tax competition matured and deepened so that, depending
on the assumptions made and the methodologies employed, theoretical per-
spectives now seem to support both the “race to the top” and the “race to the
bottom” scenario.24
In Europe, views on regulatory competition acted to a certain extent as
the economic underpinning of the subsidiarity principle under the view that
it is preferable to have local (national) regulation over international regula-
tion when feasible.25 It was seen as a way to balance the potential benefits
of regulatory competition (e.g., greater choice of regulation, disciplining
effects on national regulatory systems, maintaining flexibility for later policy
innovation) against the potential downsides of this competition (e.g., distor-
tion of cross-border economic decision-making, and suboptimal regulation
and races to the bottom). The balancing act has led to EU efforts at the
supranational level to constrain perceived problems created by unrestricted
competition.
Unlike the situation within the EU, NAFTA’s institutional and legal
framework implicitly sides with the race to the top perspective due to the
absence of any bureaucracies at the supranational level that would seek to
thwart the more harmful aspects of regulatory competition. In other words,
NAFTA defers to market forces to generate efficient policy outcomes to
a greater extent than the EU model. As discussed elsewhere, in a three-
party game with one big player with asymmetrical bargaining power (the
United States constitutes almost 90 percent of North American GDP), it
may be more rational and cost-effective for the big player to lead and for
the two smaller players to follow this lead through a process called regulatory
emulation.26 This emulation behavior and the corresponding lower costs of
governance make sense in the North American context, in contrast to the EU,
where 27 players have far more symmetry in terms of economic power.
Nevertheless, the development of more effective institutions could be sup-
ported by the two different perspectives on whether regulatory competition
promotes optimal or suboptimal economic and social policy. The thinking
that supports more intrusive government efforts to inhibit the more harmful
effects of this competition (such as adverse spillover effects through pollution
migrating across borders) would most certainly call for the development of
more effective institutions. Perhaps less obviously, the other perspective—that
regulatory and tax competition leads to a so-called race to the top—would
also seem to support a more robust institutional framework under NAFTA.
Since its inception over 15 years ago, a view has emerged that NAFTA’s
institutional framework, including its dispute resolution processes, has not
been as effective at ensuring that relevant players (e.g., the private sector)
follow the rules of the game set out within the NAFTA agreement. A pri-
vate sector actor, for example, may decide to devote resources to lobbying
its government for preferential treatment to the extent it feels that it can
game the system without a real risk that the NAFTA rules will be enforced
against its interests. This sort of scenario leads to situations that undermine
the core objectives of NAFTA to reduce trade and investment distortions that
inhibit regional economic integration. The latter perspective is also closely
related to a more recent view that competition among national regulation
and harmonization should be seen as complementary rather than alternatives:
some unification of legal rules, practices, or policies may be needed to permit
efficient competition to take place.27
The question that remains is whether the formation of new NAFTA insti-
tutions that emphasize advisory mechanisms over implementing binding
rules can effectively move forward the integration agenda set out within
NAFTA. There are at least some encouraging signs that progress can be made
through resort to “soft law” or “soft institutions,” which are said to be more
informal processes employed to achieve consensus on policy developments

by providing a forum for actors to negotiate nonbinding rules, such as prin-
ciples, instead of binding conventions: “Soft institution building can provide
more flexibility to actors, including the private sector, to implement the con-
sensus.”28 Informally coordinated and networked action by governments, it is
thought, may lead to a new form of international law- and policy-making that
addresses these challenges without imposing undue restrictions on national
sovereignty.29 Providing institutional support for trilateral consensus-building
may promote solutions that could ultimately be reflected in the development
of policies and rules deemed acceptable by the NAFTA governments.
By way of example, consider the challenges, touched on earlier, posed by
differing legal regimes that govern the private sector’s collection, use and dis-
closure of personal information. If a Canadian, for instance, makes a credit
card purchase, the credit card company may want to ship the purchase infor-
mation to a U.S. direct marketing firm and then to a Mexican call center
company to target the credit card user with new products: the different legal
regimes among the NAFTA governments along with new barriers created
by antiterrorism laws currently inhibit this sort of transfer by increasing the
costs of engaging in the activity. The EU countries have chosen to follow
the Data Protection Directive that effectively calls for the harmonization of
the different EU legal regimes governing private sector collection of personal
information.30
More saliently, a tax battle among the NAFTA countries has been brewing
since 2010 when the U.S. government introduced the Foreign Account Tax
Compliance Act to force foreign financial institutions (including Canadian
and Mexican banks) to provide tax information on any “U.S. person,” which
includes U.S. citizens and green card holders, directly to the Internal Revenue
Service (IRS). In 2011, the Canadian Minister of Finance publicly chastised
his U.S. counterparts as, in his view, the U.S. tax reforms amount to an illegal
and extra-territorial attempt to access personal tax information concerning
Canadian citizens and residents. For example, there are over one million U.S.
citizens living in Canada who, as of 2014, have to (involuntarily) provide
their Canadian bank account information to the IRS. Traditionally, the North
American governments only permitted cross-border tax information sharing
under their bilateral tax treaties.
While the harmonization of legal regimes approach is clearly not feasi-
ble under NAFTA, trilateral negotiations under a NAFTA institution could
bear fruit: the NAFTA countries could identify problem areas (such as the
interaction between the U.S. cross-border tax collection laws and the laws
of its NAFTA partners), analyze how to confront this problem, and then
propose ways to coordinate the different legal regimes to inhibit barriers
to cross-border flows of personal information. The process will continue to

respect the political sovereignty of each nation-state to pass laws that it sees fit
and will promote an environment where competition among different com-
panies located in the different NAFTA countries (e.g., financial institutions)
can take place to promote heightened efficiencies.
In summary, theoretical perspectives on regulatory competition as well
as the potential deployment of soft law support a strict subsidiarity prin-
ciple where nonbinding institutions could be developed to clarify how
NAFTA rules should work or be amended to promote the coordination of
North American legal regimes as well as efficiency-enhancing moves by North
American businesses.
4. Strict Subsidiarity under NAFTA

For the reasons set out earlier in this chapter, the EU’s subsidiarity principle
would be overly ambitious for the NAFTA countries. But a stricter form of
this principle that called for greater government deference to market forces as
well as avoided the creation of any supranational institutions that could bind
the laws of the NAFTA countries may be tenable. Article 3b(3) of the Treaty
of Rome, set out previously, could be modified to form a strict subsidiarity
principle for NAFTA purposes: “In order to achieve the objectives set out
in Article 102, the NAFTA parties shall take trilateral efforts to coordinate
their legal regimes, only if and insofar as the objectives cannot be sufficiently
achieved by the unilateral actions of the NAFTA parties or through workings
of market forces.” The strict subsidiarity principle hence calls for centralized
action—including the development of necessary centralized institutions—
to promote heightened trade and investment among the NAFTA countries
without unduly intruding into the political sovereignty of these countries.
This chapter claims that the strict subsidiarity principle can be discerned
from a number of factors, including the NAFTA deal itself. As a result, the
principle can be used to guide policy formulation without explicit incorpora-
tion into NAFTA. To enhance certainty surrounding this policy formulation,
however, it might be preferable to insert a version of this principle into Article
102 of NAFTA to ensure that the parties have come to explicit agreement on
the ambit and scope of the principle.
NAFTA Tax Provisions and Strict Subsidiarity

This part discusses how NAFTA provisions dealing with tax issues support
the use of strict subsidiarity as a guiding principle for North American tax
policy to inhibit some of the more harmful policy aspects of maintaining
different national tax regimes. It begins by discussing the policy challenges
surrounding the maintenance of these different tax regimes, and then reviews
the current way of dealing with these challenges via NAFTA and bilateral tax
treaties negotiated between each NAFTA country. In the tax area, the strict
subsidiarity principle supports heightened multilateral coordination efforts
among the NAFTA countries, including the development of a NAFTA Tax
Working Group, the harmonization of certain tax treaty provisions directed at
cross-border investment flows, binding arbitration for transfer pricing matters
(procedures were introduced in the 2007 amendments to the Canada-U.S.
tax treaty), and reduced withholding taxes.
North American Tax Policy Challenges

As subsequently discussed, NAFTA generally permits each NAFTA coun-
try to maintain and develop any tax system it sees fit to pursue its distinct
domestic economic or social agenda. The NAFTA countries have negotiated
bilateral tax treaties to coordinate these different systems to ensure that cross-
border investments are not unduly inhibited. As a result, the maintenance of
different tax laws (along with corresponding different tax burdens on differ-
ent forms of cross-border economic activities) has raised concerns, including
the following:31
(i) Cross-border investment patterns will be distorted as business people

choose investments for tax reasons and not out of real economic ratio-
nales, leading to a reduction in capital productivity for North America
and corresponding lower standards of living for its citizens;
(ii) The current regime permits tax competition to go forward unabated,
potentially triggering a race to the bottom (discussed earlier in the
chapter) as each NAFTA country lowers its tax burdens on mobile fac-
tors such as capital, leading to an inability to fund needed public goods
and services;
(iii) As this competitive process plays out, the North American governments
will need to increasingly focus taxation on less mobile factors such
as labor, leading to regressive tax policy that punishes lower income
households;
(iv) The bilateral nature of tax treaties permits each NAFTA government
to negotiate different deals with each other—without an obligation to
extend these benefits to the other NAFTA partner—leading to frag-
mentation of a marketplace that was supposed to be tied together on
a trilateral basis;
(v) The distortions of economic activity as well as market fragmentation
inhibit the ability of North America to achieve efficiencies that would
permit companies based within the region to compete more effectively

with firms based in other highly integrated areas such as the EU; and
(vi) A lack of any centralized tax institution prevents opportunities to iden-
tify areas of commonality as well as problem areas so that consensus on
reform efforts can never develop.
NAFTA Provisions and Tax Treaties

The current regime does not effectively deal with most of the challenges noted
earlier in text. This can be seen by reviewing the most pertinent tax aspects of
NAFTA as well as the tax treaties negotiated between each NAFTA country.
1. NAFTA Tax Provisions

Article 2103 of NAFTA deals with tax measures. The provision indicates
that nothing in NAFTA affects taxation measures unless it is specifically set
out in the article. The main goal behind NAFTA is to gradually eliminate
tariff barriers among the NAFTA countries. These tax-like barriers, which
include custom duties, anti-dumping and countervailing duties, and impor-
tation fees, are not considered “taxation measures” pursuant to article 2107
of NAFTA and hence do not fall under Article 2103. This permits tariff
reduction to go forward without interference from this provision.
With respect to the tax treatment of cross-border goods, Article (3)(a) of
NAFTA indicates that the national treatment obligations respecting goods
apply to taxation measures to the same extent as Article II of the General
Agreement on Tariffs and Trade32 (GATT). The GATT provision states that
imported goods shall not be subject, directly or indirectly, to internal taxes in
excess of those applied to similar domestic products.
Further, GATT prohibits its members from applying internal taxes to
imported and domestic products in such a manner that would protect domes-
tic industry. GATT Article III has commonly been interpreted to cover only
indirect taxes such as sales taxes and not to apply to direct taxes such as cor-
porate income taxes. The NAFTA provision will hence affect taxes that are
applied to goods such as sales taxes, excise taxes, and value-added taxes (for
example, the Goods and Service Tax in Canada and the Value-Added Tax
in Mexico). Article 301(2) extends nondiscrimination requirements to states
and provincial governments.
This approach does not likely prohibit a NAFTA country from using tax
expenditures to promote trade.33 The tax regimes of the NAFTA countries
distort trade flows through tax subsidies granted to a variety of busi-
nesses, including subsidies to companies that export goods, as well as to
selected domestic industries. Moreover, as a free trade area, rather than a
European-style customs union, NAFTA also does not strive to create a truly
free flow of goods across borders. Under NAFTA rules, custom officials often
stop goods at the border to ensure that the goods are properly marked as orig-
inating from a NAFTA country. Accordingly, there is not yet an impetus to
remove border tax adjustments in North America because goods already have
to stop at the border. In any event, the cross-border tax treatment of goods
and services is currently not a major area of concern. Economists generally
assert that, at least in the long run, exchange rates offset the impact of taxes
on goods and services, such as Mexico’s Value-Added Tax or Canada’s Goods
and Services Tax, which are imposed on a destination basis (that is, taxes are
placed on imported goods while exports leave the country tax free).34
There have been two NAFTA arbitration tribunal findings surrounding
taxation measures in the context of the provisions that protect cross-border
investments. In NAFTA Chapter 11 Arbitration between Pope & Talbot, Inc.
and Canada, a NAFTA Tribunal found that an agreement between Canada
and the United States concerning the imposition by Canada of an export tax
on softwood lumber did not violate performance requirements or expropria-
tion and compensation provisions of NAFTA.35 The Tribunal noted, among
other things, that while Canada’s regime, including the export tax, deterred
increased exports to the United States, this deterrence did not constitute a
prohibited “requirement” because the regime permitted unlimited exports at
a higher fee rate.36 The Tribunal also concluded that the regime did not qual-
ify as an expropriation for failure to meet the test of being an interference
“sufficiently restrictive” to support a conclusion that the property had been
“taken” from its owner.37 The Tribunal’s decision can be portrayed as tolerat-
ing limited government interference with markets as long as this interference
does not subvert the core objectives of NAFTA.
In Feldman v. Mexico, a NAFTA Tribunal found that the denial of
VAT refunds to a U.S. citizen for exports of cigarettes from Mexico did
not constitute, among other things, a violation of the expropriation and
compensation requirements. A majority of the Tribunal did, however, find
that Mexico’s tax policy discriminated against the U.S. citizen’s company
vis-à-vis its domestic competitors in contravention with national treatment
obligations in Article 1102. As a remedy for the discrimination, the tribunal
awarded the taxpayer approximately U.S.$ 1.6 million in damages for the lost
tax rebates.38 Consistent with the other decision, the Tribunal agreed that a
remedy was appropriate due to the clear violation of a principle—national
treatment—that promotes the core objectives of NAFTA.39
In addition to the cross-border treatment of goods, NAFTA also has
certain national treatment and Most Favored Nation (MFN) obligations
with respect to specified services. These obligations ensure that, in many
circumstances, each NAFTA country accords service providers of another

NAFTA country similar treatment that is provided to domestic service
providers.40 These obligations extend to taxation measures under certain cir-
cumstances. The national treatment is extended to tax measures that relate
to the cross-border purchase or consumption of services including taxes on
income, capital gains, or the capital of corporations.41
National treatment in taxation measures extends in a more limited man-
ner to the actual cross-border service providers, financial service providers,
financial institutions, investors, and their investments.42 In certain circum-
stances, national treatment is extended to tax measures that do not include
taxes on income, capital gains, or capital of corporations.43 The provision
would, therefore, apply to the Canadian Goods and Services Tax as well as
the Mexican Value-Added Tax.
The protection against discriminatory tax measures relating to cross-
border services is subject to two important qualifications. NAFTA exempts
from this protection all existing tax provisions of the NAFTA countries at
the time of signing as well as any renewals or non-aggravating amendments.
Future changes to the tax law are permitted if they try to ensure “the equi-
table and effective imposition or collection of taxes.” This broad exemption
is narrowed to a certain extent by prohibiting future tax laws that arbitrarily
discriminate between persons, goods, or services of the NAFTA countries or
that “arbitrarily nullify or impair benefits.”
2. Bilateral Tax Treaties

Article 2103(2) indicates that NAFTA does not affect the rights or obliga-
tions of any NAFTA country under any tax treaties. The provisions in the tax
treaties will prevail to the extent of any conflict between the tax treaty and
NAFTA. This allows tax treaties to take precedence over the provisions in
NAFTA, including tax treaties negotiated between a NAFTA country and
a non-NAFTA country. Because of this treatment, NAFTA countries can
agree through their tax treaties to impose discriminatory taxes on each other,
despite the fact that such behavior is prohibited by NAFTA. This permits
the NAFTA countries to use tax measures to breach the NAFTA provisions
dealing with national treatment and MFN treatment granted to investors.44
Tax treaties remain the primary mechanism for the NAFTA coun-
tries to coordinate their tax treatment of cross-border economic flows.
Unlike NAFTA, the tax treaties were negotiated bilaterally. As a result, the
NAFTA countries have extended reciprocal tax benefits between each other
without necessarily extending these benefits to a third party. These differences
may give rise to tax distortions among the NAFTA countries that are clearly
undesirable in an integrated economic environment.
The three tax treaties indicate that national treatment applies to different
taxes. The U.S.-Mexico tax treaty indicates that all taxes by all levels of gov-
ernment are covered.45 The Canada-U.S. tax treaty covers only national-level
taxes (thus, the Goods and Services Tax is covered).46 Finally, only taxes sub-
ject to the tax treaty (that is, federal income taxes and the Mexican asset tax)
are covered by the Canada-Mexico tax treaty.47
Designing North American Tax Policy Strategy under Strict Subsidiarity

The tax provisions within NAFTA, the deferral to existing coordination
measures (i.e., bilateral tax treaties), emerging tribunal law, the implicit accep-
tance that tax competition promotes mainly positive outcomes (or, at least,
the potential intrusion into each country’s tax sovereignty outweighs the
negative outcomes associated with tax competition) all support the strict
subsidiarity principle. As a result, the NAFTA countries should undertake
only multilateral tax reform efforts to promote NAFTA’s core objectives to
the extent these efforts do not create unacceptable intrusions into polit-
ical sovereignty or address problems that could be resolved via market
mechanisms or the unilateral action of a member state.48
1. Toward Heightened Multilateral Coordination

An agreement for freer trade and investment among the NAFTA countries
calls for a corresponding movement to reduce barriers to efficiency promoted
by tax differences among the NAFTA countries. Under an environment of
increased economic integration, the NAFTA countries should take steps to
address these barriers as long as minimal constraints are placed on each coun-
try’s tax policy. The NAFTA countries need to get to the bargaining table to
reach consensus on the mechanisms that should be adopted to limit some of
the more obvious problems created by the interaction of their tax regimes.
An incremental approach to gaining a better understanding and resolving
these problems is preferable under the current environment.
It makes sense then for the NAFTA countries to begin gaining a greater
understanding of the interaction of their tax systems and directing efforts
at improving the coordination of these systems. This learning process can
begin by creating a permanent tax group comprised of tax experts from each
NAFTA country (the tax authorities currently hold informal trilateral meet-
ings on North American tax compliance issues). The group could be created
under the auspices of the NAFTA Trade Commission with the consent of the
NAFTA countries. This “Tax Working Group” could resemble the current
NAFTA Working Group on Trade and Competition, which was charged with
reporting on the relationship between competition laws of the NAFTA coun-

tries and trade within North America. The group could be comprised of
officials from the NAFTA country governmental departments that tradition-
ally negotiate tax treaties: the Mexican Treasury Department, the United
States Treasury Department, and the Department of Finance in Canada.
An initial area of concern that could be explored surrounds the bilat-
eral nature of tax treaties: as mentioned, the lack of uniformity among
the tax treaties of the NAFTA countries can lead to distortions in the
North American capital market. As a result, certain tax scholars have called
for the multilateral negotiation of tax treaties to better reflect enhanced
regional and global economic integration.49 The NAFTA countries should
consider implementing multilateral tax treaty negotiations: traditional bilat-
eral treaty negotiation is not etched in stone. Further, the tax policies of the
NAFTA countries appear to have converged somewhat (at least with respect
to business income taxes), which may make the negotiations more feasible.
There has been an additional movement among the NAFTA partners to
reduce withholding tax rates (i.e., gross tax rates imposed on cross-border
payments of interest, dividends, royalties, and rents) in recent years in their
tax treaty negotiations. The NAFTA countries should consider abolishing
parent-subsidiary interest and dividend withholding taxes, which act as a bar-
rier to cross-border investments (these withholding taxes have already been
abolished in the Mexico-United States tax treaty).
Reluctance to enter into multilateral negotiations stems, in part, from
the desire to extend tax benefits on a reciprocal basis without granting these
benefits to all trade partners. It may be more feasible to trilateralize treaty pro-
visions that deal with highly mobile factors such as investment flows; other
provisions that are tailored to the bilateral interests of the NAFTA partners
(for example, pension income) could remain unchanged. In any event, efforts
should be made to extend the same tax benefits to all trade partners in a
multilateral free trade and investment area in order to reduce capital market
fragmentation. The broader use of most favored nation provisions in North
American tax treaties (e.g., where one country agrees to lower its withhold-
ing tax rates to the rates negotiated by its two other NAFTA partners) would
also go a long way toward harmonizing treaty provisions in areas that target
cross-border capital flows.
Additional proposals could focus on improving the relationship among
the NAFTA country tax authorities and making it easier for companies to
comply with cross-border tax requirements: these sorts of cooperative efforts
are increasingly important in light of enhanced cross-border flows of goods
and services resulting from information technology developments.50 The
NAFTA countries should extend, through their bilateral tax treaties, the tax
enforcement of each NAFTA country’s tax claims (currently contemplated in

the Canada-U.S. tax treaty only) as well as permit other NAFTA country tax
officials to maintain a presence in their countries.
The NAFTA countries should increase cooperation and improve the for-
mal channels for the exchange of information, perhaps with a secure extranet
accessible only by tax authorities (the information collected could also be
useful to assist taxpayers and tax authorities at discerning appropriate transfer
prices). The countries can also expand joint and multilateral audit procedures.
In this regard, the NAFTA countries should consider expanding the use of
simultaneous examination procedures (SEPs) where two or more countries
conduct a simultaneous audit of a multinational firm and then exchange the
audit findings.
Further, the NAFTA countries should try to come up with measures
to reduce administrative and compliance costs for cross-border investments
from one NAFTA country to another. The NAFTA countries should likely
exempt each other’s taxpayers from compliance with some of their more oner-
ous international tax rules that are designed to counter tax avoidance and tax
evasion. Similarly, the NAFTA countries should consider implementing so-
called safe harbors that would permit multinational firms to be exempt from
ordinary transfer pricing methods or documentation requirements under
certain circumstances.
2. North American Tax Competition and Regulatory Emulation

An obvious drawback of pursuing heightened multilateral coordination is
that it does not address many of the concerns noted at the outset of this part.
Cross-border economic activity would continue to be distorted by differential
tax burdens resulting from different North American tax regimes. Tax com-
petition would continue unabated although it will not likely promote a race
to the bottom scenario noted earlier whereby countries compete with their
corporate income tax systems for cross-border capital by continued rate low-
ering to the point where they collect insufficient revenues to pay for needed
public goods. This can be seen by resorting to a simple game theory model.
Consider, for example, potential tax competition between two countries:
smaller economy (e.g., Canada or Mexico) receives the bulk of its foreign
direct investment (FDI) from larger economy (e.g., the United States), which
receives a small portion of its FDI from the other NAFTA countries. A game
theory model can be developed whereby each country enjoys utility gains
through the preservation of tax sovereignty as both governments wish to
maintain their ability to design their own international tax rules to promote
perceived self-interested goals.51 Moreover, each country enjoys utility gains
through the attraction of FDI.
Smaller economy may be willing to engage in tax competition as the utility

gains associated with attracting FDI outweigh its political concerns. In con-
trast, larger economy may be indifferent to the moves by smaller economy
because the utility gains associated with attracting FDI from smaller econ-
omy are outweighed by the utility gained through the preservation of tax
sovereignty. Because tax sovereignty concerns act as a constraint on larger
economy’s willingness to engage in tax competition, smaller economy is pre-
sented with an opportunity to undercut tax burdens on capital without facing
the risk of retaliation from larger economy that could trigger a race to the
bottom. In other words, it is rational for smaller economy to engage in tax
competition by trying to attract investments away from larger economy to
make up for the loss of political sovereignty suffered when smaller economy
is forced to react to the other country’s reform efforts.
Again, the model is meant to show that concerns over race to the bottom
may be overstated in the North American context, but it will not inhibit prob-
lems associated with distortions of cross-border capital flows that could lead
to a reduction in North American capital productivity and reduced standards
of living.
Conclusion
NAFTA represents the aspiration of the North American governments to
improve the welfare and standards of living of their citizens and residents
through enhanced regional economic integration. The deal also reflects the
very real concerns that these governments have surrounding unwarranted
intrusions into their political sovereignty that could erode national cultural
distinctiveness or harm their ability to pursue diverse policies to improve the
economic or social welfare of their citizens. Moreover, as a free trade area
rather than an EU-style customs union, NAFTA’s main goals to reduce cross-
border barriers to trade and investment do not generally require major forms
of institutional support. For this reason, NAFTA did not involve the creation
of any significant centralized political linkages among the North American
governments.
Nevertheless, with over 15 years of experience with NAFTA, a concern
has arisen that the deal is not promoting its core objectives to the extent
first thought possible. In particular, NAFTA may not be promoting sufficient
efficiencies that would enable multinational firms based within the North
American bloc to compete as effectively as possible with other multinational
firms located in regionally integrated areas such as the EU or with emerg-
ing economic giants such as China. To move the deal forward, it has been
suggested that the history and current political reality of North America,
the mandate of the NAFTA deal itself, along with theoretical perspectives
within economics and international relations works, all support the use of
a strict subsidiarity principle to guide the development of NAFTA reform
efforts.
Under a strict subsidiarity principle, the NAFTA governments should take
only centralized action when they agree on the following: (a) it is necessary
to achieve the core objectives of NAFTA, (b) it will not result in undue
intrusions into the political sovereignty of each partner such as through
the development of supranational institutions that could harmonize laws,
and (c) market forces or the unilateral actions of a NAFTA country can-
not achieve the core objectives. Coordination via central institutions, rather
than the harmonization of laws, is the preferred route. With respect to North
American tax policy, this principle calls for a strategy of heightened multi-
lateral coordination, including the development of a NAFTA Tax Working
Group.
Notes
1. See Treaty of Lisbon amending the Treaty on European Union and the Treaty
establishing the European Community, signed at Lisbon, 13 December 2007,
Official Journal of the European Union, C 306/12 (Dec. 12, 2007). The Treaty
was ratified by all European Union governments and entered into force on
December 1, 2009.
2. Case 294/83, Parti ecologiste ‘Les Verts’ v. European Parliament, 1986 E.C.R. 1339,
1365.
3. Single European Act, February 28, 1986, OJ 1987 L 169, June 29, 1987.
4. See, for example, J. H. H. Weiler, The Transformation of Europe, 100 Yale
L. J. 2403 (1991). This section draws from an earlier work comparing EU
and NAFTA developments. See Arthur J. Cockfield, NAFTA Tax Law and Pol-
icy: Resolving the Clash between Economic and Sovereignty Interests 105–127
(Toronto: University of Toronto Press, 2005) (hereinafter “NAFTA Tax Law and
Policy”).
5. The subsidiarity principle has different meanings depending on the political
context (e.g., the principle is used in U.S. discussions concerning federalism),
and the analysis herein will focus only on the meaning with respect to EU
developments. In addition, the proper interpretation of the EU’s version of the
subsidiarity principle remains contentious with different observers emphasizing
the legal and/or political aspects of this principle. This chapter does not attempt
to address these complexities.
6. See Treaty of Lisbon amending the Treaty on European Union and the Treaty
establishing the European Community, signed at Lisbon, December 13, 2007,
Official Journal of the European Union, C 306/12 (December 12, 2007). Impor-
tantly, as of February 2009, only 23 of the 27 EU member states had ratified the
Treaty of Lisbon, and it will not take effect until all of the member states ratify
this treaty.
7. Id. at 150–152.
8. Single European Act, Article 8(a), supra note 2.
9. The effect of the subsidiarity principle on areas such as taxation continues to be
debated. See, for example, Sijbren Cnossen, Reform and Harmonization of the
Company Tax Systems in the European Union 24 (Research Centre for Eco-
nomic Policy Research Memorandum 9606, 1996) (arguing that subsidiarity
suggests “that tax sovereignty has to be ceded in establishing the tax entitlement
rules so that tax independency can be exercised more fully in administering these
rules”). But see Moris Lehner, EC Law and the Competence to Abolish Double
Taxation, in Tax Treaties and EC Law 1, 13, (Series on International Taxation,
vol.16, 1997) (concluding that subsidiarity and its impact on Article 220 of the
Treaty of Rome requires the EU countries themselves to take action to abolish
double taxation via their tax treaties).
10. See Arthur J. Cockfield, Tax Integration under NAFTA: Resolving the Con-
flict between Economic and Sovereignty Interests, 34 Stanford J. Int’l L. 39
(1998).
11. See Frederick M. Abbott, Law and Policy of Regional Integration: The
NAFTA and Western Hemispheric Integration in the World Trade Organization
28 (1995).
12. See, for example, Maryse Robert, Negotiating NAFTA: Explaining the Outcome
in Culture, Textiles, Autos and Pharmaceuticals 24–42(2000).
13. See Arthur J. Cockfield, Legal Constraints on Transferring Personal Information
across Borders: A Comparative Analysis of Canadian and Foreign Private Sector
Privacy Laws, in Elia Zureik et al., eds., Surveillance, Privacy, and the Glob-
alization of Personal Information: International Comparisons (Montreal and
Kingston: McGill-Queen’s University Press, 2010), at p. 50 (discussing relevant
privacy laws from Canada, the United States and Mexico).
14. See David Loukedelis, Privacy and the USA Patriot Act: Implications for British
Columbia Public Sector Outsourcing (Office of the Information and Privacy
Commissioner, October 2004).
15. See Robert A. Pastor, NAFTA Is Not Enough: Steps toward a North American
Community, in Peter Haskin and Robert E. Litan, eds., The Future of North
American Integration 87, 100 (2002).
16. Ibid. at 102–103.
17. But see Leo Panitch, Rethinking the Role of the State, in James H. Mittelman,
ed., Globalization: Critical Reflections 96 (1996) (arguing NAFTA will function
as an economic constitution, setting the types of economic policies that all
governments must follow).
18. See Gary Clyde Hubauer and Jeffrey J. Schott, NAFTA Revisited: Achievements
and Challenges 61 (2005).
19. See, for example, O.E. Williamson, Public and Private Bureaucracies: A Trans-
action Cost Economics Perspective, 15 J. Law, Economics, and Organization
306 (1999); Willem Molle, The Economics of European Integration: Theory,

Practice, Policy 19 (5th ed., 2006).
20. See Hubauer and Schott, supra note 18, at 488–490.
21. See Pastor, supra note 15, at 106–113.
22. See Jeanne-Mey Sun and Jacques Pelkmans, Regulatory Competition in the
Single Market, 33 J. Com. Mkt. Studies 67, 68 (1995).
23. For a recent treatment on the different perspectives, see Kathryn Harrison, ed.,
Racing to the Bottom? Provincial Interdependence in the Canadian Federation
(UBC Press, 2006).
24. See Kenneth J. McKenzie, A Race to the Bottom in Provincial Business Taxa-
tion in Canada?, in Kathryn Harrison (ed.) Racing to the Bottom? Provincial
Interdependence in the Canadian Federation 25, 36 (2006) (“[F]rom a theoret-
ical perspective, it is impossible to conclude whether tax competition results in
taxes that are too high, too low, or just right.”); John D. Wilson and David Ed.
Wildasin, Capital Tax Competition: Bane or Boon (2003) 88(6) Journal of Public
Economics 1063, 1078 (discussing how models predict both welfare-improving
and welfare-reducing effects associated with tax competition).
25. Sun and Pelmans, supra note 22, at 68, 82–84.
26. See NAFTA Tax Law and Policy, supra note 4, at 169–173.
27. See Sun and Pelkmans, supra note 22, at 88; Stephen Woolcock, The Single
European Market: Centralization or Competition Among National Rules? 13
(1994).
28. Suh-Yong Chung, Is the Mediterranean Regional Cooperation Model Applica-
ble to Northeast Asia?, 11 Geo. Int’l L. Env. L.R. 363, 395 (1999); Arthur
J. Cockfield, The Rise of the OECD as Informal World Tax Authority through
National Responses to E-commerce Tax Challenges, 18 Yale J. L. & Tech. 136
(2006).
29. See Anne-Marie Slaughter, A New World Order (Princeton and Oxford: Oxford
University Press, 2004). But see Kenneth Anderson, Book Review: Squaring the
Circle? Reconciling Sovereignty and Global Governance through Global Govern-
ment Networks, 118 Harv. L. Rev. 1255 (2005) (concluding that global networks
may unduly erode sovereignty interests).
30. See EC, European Parliament and Council Directive 95/46/EC of October 24,
1995, on the protection of individuals with regard to the processing of personal
data and on the free movement of such data, [1995] O.J.L. 281/31.
31. For discussion of cross-border tax challenges in the context of free trade efforts,
see generally Joel Slemrod, Tax Cacophony and the Benefits of Free Trade,
in Fair Trade and Harmonization: Prerequisites for Free Trade? 283 (Jagdish
N. Bhagwati and Robert E. Hudec, eds., vol. 2: Legal Analysis, 1996); Arthur
J. Cockfield and Brian J. Arnold, What Can Trade Teach Tax? Examining Reform
Options for Article 24 (Non-Discrimination) of the OECD Model Tax Treaty, 2
World Tax Journal 139 (2010).
32. General Agreement on Tariffs and Trade, April 10, 1947, vol. 55 United Nations
Tax Service at 188 (hereinafter GATT).
33. For a discussion on this point, see Paul R. McDaniel, Formulary Taxation in the
North American Free Trade Zone, 49 Tax Law Review 691, 715 (1994) (dis-
cussing the use of tax expenditures in Canada and the United States). Certain
tax provisions of the NAFTA countries have been challenged under GATT from
time to time; see Asif H. Qureshi, “Trade Related Aspects of International Tax-
ation: A New WTO Code of Conduct?” (1996) 161 Journal of World Trade 30
(describing GATT panel decisions concerning trade promoting both Canadian
and American tax provisions). There is an additional provision that prohibits
the NAFTA countries from imposing export taxes on the export of goods to
another NAFTA country in many circumstances. NAFTA Article 2103(3)(b).
NAFTA national treatment requirements do not extend to any nonconforming
tax measures that are currently in force or to measures that continue or amend the
initial measure in such a way as not to decrease the conformity. NAFTA Article
2103(4)(d).
34. See Jane G. Gravelle, “International Tax Competition: Does It Make a Dif-
ference for Tax Policy?” (1986) 39 National Tax Journal 375 (explaining how
exchange rates adjust to offset price effects of rebated indirect taxes and corporate
income taxes); Slemrod, supra note 31, at 283 (noting that indirect taxes with
nonuniform rates can distort the pattern of production and trade).
35. See International Trade Canada, Dispute Settlement NAFTA—Chapter 11—
Investment, “NAFTA Chapter 11 Arbitration between Pope & Talbot, Inc. and
Canada” (26 June 2000). In a second decision involving this case that was ren-
dered on May 31, 2002, the Tribunal awarded damages for expenses incurred as
a result of a verification audit.
36. Id. at par. 75.
37. Id. at par. 102.
38. See Feldman v. Mexico (2002), ARB(AF)/99/1. Because Ottawa was the seat
of arbitration, Mexico brought an application to set aside the NAFTA award
before the Ontario Superior Court of Justice. In upholding the award, the court
expressed to the need for a high level of deference to the expert Tribunal’s find-
ings. See Mexico v. Karpa (2003) O.J. No. 5070 (S.C.J.). The decision was
subsequently upheld by the Ontario Court of Appeal (see Mexico v. Karpa [2005]
O.J. No. 16 (C.A.).
39. Id. at par. 184 and 187.
40. NAFTA Article 1201.
41. NAFTA Article 2103(4)(a).
42. NAFTA Article 2103(4)(b).
43. NAFTA annex 2103.4 describes the application of the Mexican asset tax.
44. NAFTA articles 1102 to 1104.
45. Article XXV.6 of the U.S.-Mexico tax treaty.
46. Article XIII of the third protocol.
47. Article XXIII.5 of the Canada-Mexico tax treaty.
48. This section draws from NAFTA Tax Law and Policy, supra note 3, at
175–183.
49. See Victor Thuronyi, International Tax Cooperation and a Multilateral Treaty,
Brooklyn J. Int’l L. 1641 (2001) (discussing how a gradual movement toward
multilateral tax treaties could be accomplished, including through the devel-
opment of multilateral regional tax treaties); Diane M. Ring, Commentary:
Prospects for a Multilateral Tax Treaty, 26 Brookly J. Int’l L. 1699 (2001)
(discussing different processes to promote multilateral treaty negotiations).
50. See, for example, Arthur J. Cockfield, Transforming the Internet into a Taxable
Forum: A Case Study in E-commerce Taxation, 85 Min. L. Rev. 1171, 1263–
1265 (2001) (discussing how cooperation surrounding technological measures
to enforce tax laws would help to preserve sovereignty).
51. See NAFTA Tax Law and Policy, supra note 3, 166–174.
CHAPTER 7
Single Market Governance: Lessons

from the European Experience
Michelle Egan
Introduction
Much has been accomplished 20 years after the Single European Act, which
led to the widening scope and deepening of the internal market in Europe.
The internal market has extended to cover most of the goods sector, select
service sectors, and made significant progress in capital market liberalization
and intellectual property rights. For labor, progress has been more limited
with continued restrictions in place that limit mobility. Assessment should
also take account of cross-cutting issues such as public procurement, research,
and innovation policies, which influence the market dynamics and strategies
of firms in Europe.1
Yet in taking stock, the accomplishments are considerable as the formal
legal framework and institutional setting have extended European economic
governance beyond its territorial borders as the EU has advanced its regu-
latory rules at the international level. Such rule promotion has allowed for
economic policy coordination that reflects efforts to manage and shape glob-
alization processes in Europe. However, there are concerns about the potential
risks to the single market in the current economic climate as protectionist
pressures will require robust responses to ensure that competition is not dis-
torted. While the legal underpinning of the single market continues to be
robust, the political pressures will determine the strength of commitment to
further market liberalization and integration—and the vitality of the single
market—as the engine for economic growth in Europe in coming years.
The principal aim of this chapter is to critically address the function-
ing of the single market, given the vast range of tools and instruments in

150 ● Michelle Egan
this area, and the significant interest in issues relating to implementation

and compliance. Understanding the institutional and policy dynamics has
implications beyond Europe in fostering regional integration, as the single
market has been promoted as a means of globalization. In particular, the role
played by new modes of governance should be carefully analyzed, as well as
the dynamics between negative and positive integration to understand what
legal convergence in fact entails so that the European experience provides a
benchmark for other regional integration efforts. This is especially impor-
tant as the governance of the EU has evolved significantly in recent years,
with greater pressure on the much vaunted social model, indicating that the
constitutional asymmetry in Europe has fostered negative integration at the
expense of positive integration. Thus, the EU would encourage economic
growth, trade and integration, while the constituent member states would
develop the redistributive response through the welfare states to adjust to
greater competition and economic pressures. This decoupling of economic
integration and social protection issues in Europe means that the EU relied
primarily on negative integration to remove barriers to trade and promote the
economic freedoms through case law, emphasizing legal formalism over sub-
stantive rationality and social rights. The selective Europeanization of certain
market functions meant that European law and rules would take precedence
over national practices, with national protective regulatory regimes being sub-
jected to legal rulings and market pressures, with no corresponding positive
integration to harmonize national welfare regimes. The erosion of national
social models has led critics to advocate for new modes of governance to
address the constitutional asymmetry.
Thus, as market integration deepens, the distributive costs are sharpened,
and market integration is more contested. The problem of communitarizing
policy has led to so-called new modes of governance in the EU in which both
state and private actors are shaping regulatory outcomes. This “delegation”
of regulatory tasks to nongovernmental actors is accompanied by new con-
cerns with the social responsibility of the economy, its overall performance,
and the legitimacy of its governance structures. No longer is market inte-
gration about achieving pareto-efficiency as the scope, scale, and effect of
European integration reach deeper into the autonomy of member states that
face increasing constraints on their tax, welfare, and social practices especially
in the “shadow of constitutionalized European law.”2 Legitimizing the single
market is clearly of concern in the wake of public opposition and legal rulings
that decouple economic integration and social protection. The legal focus on
economic freedoms and treaty obligations, even if this restricts local practices,
clearly demonstrates the complexities and trade-offs for those advocating legal
convergence in other regional contexts where social protection and regulatory
Single Market Governance ● 151
policies differ considerably. Important components of social models are hard

to defend in the context of increased market integration3 leading to either
greater social policy coordination or restrictions on intra-European trade and
freedom of establishment, labor and services. How then should those states
engaged in North American integration further integrate their markets? What
can we learn from the European experience?
This chapter proceeds in four sections. The first section provides a brief
overview of the current state of the internal market. The second section
focuses on different regulatory strategies that have been used to foster eco-
nomic coordination. The third section evaluates their effectiveness and then
considers different reform strategies that have been attempted to improve the
implementation and compliance with single market obligations. The goal
is to provide some observations from the European case where its political
salience has declined and resistance sharpens over further efforts to pro-
mote the openness of the EU economy. This may provide some lessons and
thoughts for those focusing on market integration in NAFTA as it highlights
the scope and scale of European efforts, the learning effects, and the obsta-
cles to further action to liberalize and integrate specific sectors and markets
in Europe. Yet the question remains at to how effective are different regula-
tory strategies in achieving the single market and what lessons can be drawn
from the ability of the EU to develop functional and effective governance
structures. Paying particular attention to the specific challenges created by
market integration will perhaps provide a basis of comparison with debates
over legal harmonization in NAFTA, but it suggests that more attention needs
to be given to the evaluation and effectiveness of different strategies within
Europe.
Single Market: State of Play

The fundamental idea of a common or internal market is that “economic
frontiers” between national markets are diminished to allow for the mobil-
ity of goods, services, and production factors. For nearly two decades, the
overriding goal of the European integration project has been to achieve this
goal. Now attention has turned toward making the European economic sys-
tem deliver by improving the dynamics of the single market (see Table 7.1
for a review of status of single market). As Pelkmans concludes, “progress
in entrepreneurial activity and improved competitiveness can be improved
generally by measures aimed at reducing regulation, improving labor mobil-
ity and service liberalization.”4 In service, the denial of free movement and
hindrance of free establishment create problems in facilitating cross-border
trade.5 Firm start up or authorization requirements, obligatory membership
152
Table 7.1 Combines the free movements/free establishment (vertical axis) and the four market failures (in columns 2–5), which would have to be addressed
for the IM to function properly (This table is adapted from Pelkmans (2006).)
Free Externalities Internalities Market power, Public goods

mov./establishment distortions
Goods – does not fully exist in – safety, health, environment – safety, health, environment and – competition policy is – uniformity EC law in
law or practice and consumer protection risk consumer protection risk regulated by both EU this area, regulation of
– mutual recognition regulations are flawed regulations are flawed and member-sates damages
of MS standards is – regulation of product liability – regulation of product liability – regulation of taxation – trans-European
problematic – national regulations are few – regulation of public network is weak
– movement of foreign procurement – it is unclear if national
direct investment – national regulations are regulations hinder
(FDI) is free few integration
Services – does not fully exist in – some safety, health, – regulation of minimum standards – competition policy – uniformity EC law in
law, in practice is environment and consumer for professional services regulated by EU and this area, regulation of
limited and not protection risk regulations are – some regulation of safety, health, MS is often soft damages
uniformly enforced flawed environment and consumer – regulation of taxation – trans-European
– many derogations by – regulation of systemic risks protection risk – regulation of public network is weak
MS across various (linked failures in banking – all network industries (transport, procurement – it is unclear if national
types of services, i.e., system that can lead to crisis) energy, telecommunications) are – existence of labor regulations hinder
derogations are – regulation of minimal regulated, but free movement is restrictions integration
undisciplined standards for professional still remote – national regulations are
– mutual recognition of services – regulation of “general good” is abundant, which is an
standards is rare – regulation of internet network lacking obstacle to integration
– movement of foreign security – enforcement is flawed – national regulation of
direct investment – national regulations especially – national regulations are abundant EU patents is an
(FDI) is free in professional services hinder and are an obstacle to integration obstacle
mobility and rights of
establishment
Capital – does not fully exist in – regulation of systemic risks – disclosure rules – little regulation of – creation of Euro
law or practice – regulation of taxation is an – some corporate governance taxation
(at times, costly) obstacle regulation – regulation of clearing &
– mutual recognition of – regulation of accounting settlement is under
MS standards in standards review
company law is rare – national regulations exist in – national regulations
company law, which is an exist in both taxation
obstacle for integration and clearing &
settlement, which is an
obstacle to integration
Labor – has legal limitations – regulation of workplace risk – mutual recognition of diplomas is – regulation of portability
– does not fully exist in – establishment of selected min. based on minimum training pensions
practice, restrictions standards (e.g.training) standards regulation – regulation of portability
apply to some social security claims
countries) – establishment of posted
– mutual recognition is workers rules
not applicable – national regulations are
substantial in
employment protection
law, equity links, etc,
which is an obstacle to
integration
153
in local professional associations, specific legal forms for firms, limitations

on variety of services provided, and requirements to use local suppliers illus-
trate the different requirements that firms face in doing business in multiple
markets in Europe.6
In labor, free movement is hindered by national restrictions and by the cur-
tailment of demand via the host country control principle, which denies the
advantages of mobility to those workers in low-wage European countries.7
The failure of mutual recognition, despite its assumption of equivalence of
regulatory objectives, due to lack of trust and little confidence in equiva-
lent regulatory regimes, resulting in misapplication and resistance, along with
continued derogations thwart the operation of the single market.8 The conse-
quence of such heterogeneity of regulations limits intra-European economies
of scale, generates higher domestic prices, and suppresses competition.9 As a
result, free movement is prevented in certain segments of the internal market
because national regulations are still in the way.10 Yet liberalization of mar-
kets necessitates governance structures to enforce market competition and
maintain credible market commitments.11 Examination of the patterns of
governance in the European Union suggest the increasing rhetorical empha-
sis and actual utilization of new policy instruments that complement or
substitute for the traditional emphasis on harmonization.
Many scholars in international relations and international law have identi-
fied significant changes in the nature of governance that differ from previous
regulatory and legal paradigms.12 Whether it is the substitution of gov-
ernment monopolies for competition, the growth of adversarial legalism,
the expansion of private rule making, or the codification of administra-
tion procedures, the political demands for market integration has generated
new mechanisms and instruments of governance. The imperatives of market
building have continuously faced challenges, in terms of both the conflict
between the positive state and the sense of attachment around a particu-
lar social model, and the regulatory state, and the creation of a competitive
market economy.13
The effect has been to transform the role of the state, and put pressure
on the ensuing government practices to stabilize and regulate markets, and at
the same time implementing and searching for new innovative mechanisms
to manage and steer the economy in the context of globalization. Ultimately,
the process of market making in the European Union has effectively sepa-
rated the means of distribution from the means of regulation. The European
Union specializes in regulation since it has few of the financial or political
resources to create welfare programs, and has thus focused on securing and
maintaining an authoritative set of rules, accompanied by some mechanism
for monitoring and promoting compliance with those rules.14
Different Regulatory Strategies

More often than not, questions about how to promote market integration
revolve around traditional policies of harmonization. While harmonization
was the dominant form of policy-making in the early stages of market
integration, “informal governance has become a major form of public sec-
tor intervention into society and economy, but rather than being a single
instrument, informal governance actually contains a number of different
instruments and forms of intervention.”15 As such, the current debate in
Europe on the institutional design and governance of the single market
revolves around the changing policy instruments, ideas, and paradigms that
have emerged.16
The following section illustrates the various ways the European Union
has sought to coordinate economic practices to improve market access and
foster regulatory competition among rules. Many of these developments are
recent and are weakly institutionalized, but they serve to provide a survey and
typology broader array of instruments of policy-making and coordination
available (see Table 7.2). Non-legislative policy coordination has increasingly
been used to stimulate integration in areas where the policy-making is under
the competence of member states and in some instances where treaty rules
have few directly applicable revisions. Some of these modes of governance will
depend on voluntary performance standards rather than compulsory regula-
tion. In the European context, existing institutional rules are thus constantly
being adjusted, not just by judicial interpretation but also through both for-
mal changes and more informal strategies.17 Such a range of processes and
practices have a normative dimension but do not operate primarily or at
all through the formal mechanism of traditional command-and-control-type
legal institutions.18
Harmonization
Traditional regulatory instruments such as harmonization have been widely
used in relation to the single market. Harmonization is justified as a
Table 7.2 EU policy instruments
Harmonization
Regulatory competition and mutual recognition
Third party regulation (mandatory inspections/audits by non-government parties)
Performance-based rules (open method of coordination)
Self-regulation and co-regulation (codes of conduct, voluntary agreements)
Market-based instruments (taxes, tradable permits)
complement to liberalization where market failures have to be overcome by

regulation.19 The EU has a strong rationale for harmonization of national
policies as it seeks to avoid barriers to trade and distortions in competition.
Harmonization also creates the conditions under which states have a strong
incentive to compete for economic advantage or at least reduce regulatory
adjustment costs by trying to shape regulatory outcomes according to their
own regulatory standards.20
Harmonization has, in fact, two elements in the single market program.
One traditional method covers individual sectors and is based on detailed
precise product rules or specifications for a number of sectors that have high
risk thresholds. This approach proved time consuming and difficult due to
the decision rules based on unanimity. The other method is a new approach
where broad objectives are harmonized covering a range of sectors under
horizontal directives. Where mutual recognition does not apply, the new
approach can be applied, which restricts harmonization to essential health
and safety requirements, while meeting the specification of these require-
ments is left to the European standardization bodies (CEN, CENELEC,
and ETSI).21 Such uniform standards facilitate cooperation among firms
by promoting compatibility of product specifications. Standards may be
voluntary or mandatory, and may be set by a governmental or private
standard-setting body.
Mutual Recognition
Mutual recognition is a central trade principle in the single market as
it addresses the problems created by regulatory barriers between member
states.22 Mutual recognition starts from the idea that member states empha-
size equivalent regulatory objectives in safety, health, environment, and
consumer protection. The assumption is that such goods and services should
be allowed unhindered access to circulate freely without additional licens-
ing, certification, or inspection as the regulatory objectives are equivalent.23
To bolster this effort, case law has required member states to include reference
to mutual recognition in their national legislation so accepting the princi-
ple that the free trade principle will prevail where regulatory objectives are
equivalent.24 This had the great advantage that agreement on the remaining
regulatory objectives would be restricted to issues where regulatory practices
differed substantially. Mutual recognition is facilitated by treaty obligations
and ensures that free movement of goods and services do not require harmo-
nization. The burden of proof of non-equivalence of regulations rests with
member states, and where this is upheld, the treaty allows for free movement
through harmonization under qualified majority voting. All derogations are
subject to a proportionality test, which is an integral component of catching

restrictive measures.25
A corollary of making home country control and mutual recognition work
is requiring member states to cooperate. Many directives in areas of corpo-
rate law or medical approval for example require that competent authorities
from different member states cooperate and exchange information to build up
mutual trust where mutual recognition operates.26 However, it has been diffi-
cult to get mutual recognition accepted in practice. Member states often still
verify the “equivalence” of objectives of health and safety, and mutual accep-
tance of licensing, certification, and testing practices are often not recognized.
In services, the concept of home country controls faces similar problems as
the legislation of member states has been condemned for failing to take into
account conditions fulfilled or guarantees offered by a service provider in
his/her home state. Business has been increasingly critical because of the costs
and uncertainties in its application in actual practice as there are continual
legal cases where the principle of mutual recognition is not applied properly
or not applied at all.27
Open Method of Coordination

The open method of coordination in the Lisbon framework is essentially
a process of benchmarking and learning from policies and innovations of
other member states.28 It is part of a loosely structured set of labor regula-
tions in areas such as workplace conditions that have resulted in Europe-wide
legislation relating to “market citizenship.” These have emerged despite the
marginal emphasis on social solidarity at the EU level.29 Although the EU
has limited legal competence in reforming social and employment policies,
it has made inroads into fostering welfare coordination through promoting
national action plans that monitor employment performance, and promote
social inclusion and gender equality. Such soft mechanisms in areas of
labor law reflect new forms of governance based on benchmarks, evalua-
tion, monitoring mutual learning, and policy emulation models as political
constraints have made it difficult to promote significant European-wide labor
regulation.30
Such alternatives to classic regulatory approaches may leave room for
experimentation with alternative governance structures, but the lack of
explicit legal authority can prove problematic.31 These flexible instruments
may create increased opportunities to opt out, as the relative weakness of
the legal foundation can allow states to exercise their right to use dero-
gations and exemptions.32 However, differential costs may also result in
stricter standards in some member states, as mutual regulation set only
minimum standards, made provisions for delayed implementation, and

reflected (cultural) problems in Britain where collective agreements at sectoral
or plant level on wage-related issues are rare.33 This also raises a number of
questions about the prospect of policy transfer given specific institutional and
administrative contexts that are often “neglected because of the assumption
of total fungibility of best practices.”34
Early Warning Systems35

A central element in fostering treaty principles on free movement is provided
by notification procedures that compel member states to provide mutual
information about regulatory practices. At one end of the spectrum are
reporting requirements that simply impose general obligations to provide
community institutions with data and information. At the other end are more
stringent requirements such as the mutual information directive (98/34/EC),
which requires member states and (private) standards bodies to notify the
European Commission about any draft regulation or standard at the national
level so that the community and member states can comment on the impact
of such prospective laws in relation to impeding market access.
Such preventive measures may impose a standstill on member states leg-
islation, and may allow the community institutions to preempt national
legislation by proposing a regulation or directive in the same area.36 A some-
what different mechanism has emerged in terms of transatlantic trade issues,
where an early warning mechanism was meant to identify areas of regulatory
activity that might give rise to transatlantic disputes.37
Market-Based Incentives
There is also a widespread desire based on subsidiarity and competitiveness
concerns to use more market-based policy instruments such as charges, taxes,
and permits. These market-based instruments vary in terms of the coercive-
ness imposed upon target actors, and are often assimilated elements from
national initiatives.38 Along with stricter liability laws, these instruments that
correspond to the polluter pays principle are much broader than intervention-
ist measures. The emphasis on market-based, cost-effective instruments fit the
broader neoliberal shift in Europe, but the subsequent regulatory changes in
such instruments has been to shift from detailed specifications to broad objec-
tives, leaving member states to adapt to specific conditions. However, the
growth of environmental taxes and charges at the national level has not been
matched at the EU level, as tax issues unlike environmental policy require
unanimous approval among member states. While economic instruments
may spill over from the national level, there is often pressure for uniform
standards to avoid trade barriers and distortions of competition.
Self-Regulation and Co-Regulation

There have been efforts to promote self-regulatory and co-regulatory arrange-
ments, including voluntary measures by industry, particularly in the envi-
ronmental and taxation areas.39 Such voluntary standards are then desirable
instruments to drastically lower information costs and uncertainty for busi-
ness and provide flexible forms of governance.40 In business taxation, the
European Union has adopted a voluntary code of conduct after several
decades of seeking to deal with tax distortions through traditional pol-
icy instruments.41 Another example of such coordinative efforts is the EU
transfer pricing forum on business taxation. The European Union was con-
cerned about tax distortions in the internal market, and the impact of double
taxation of companies operating in two or more member states.42
However, limited progress on tax coordination has resulted in a shift
toward the impact of harmful tax competition that affects those member
states with attractive rates of corporate taxation (e.g., Ireland). The effect is
to create an incentive structure where companies respond to externalities, for
example, by agreeing to risk management and internal audit mechanisms, so
that voluntary action is chosen over mandated legal regulation. From a reg-
ulatory perspective, there is doubt about the effectiveness of such practices,
especially where a framework of enforcement mechanisms or organizational
commitment may be lacking. However, the code of conduct is nested within
a broader framework of initiatives in which such voluntary negotiated agree-
ments relies on effective monitoring and sanctions, as well as compatibility
with existing legal rules and state aid regimes. Almost always, such flexible
forms of governance are negotiated under a “shadow of hierarchy” since states
will intervene to set the parameters for voluntary coordination to correct any
negative market outcomes.43
Consultation
Promoting notions of partnership is one means to encourage better coordina-
tion. While the European Union utilizes joint consultation and coordinates
industry-wide groups to provide guidance on issues such as collaborative
research and innovation, this process tends to be ad hoc. It does not resem-
ble old interventionist practices of industrial policy either at the national or
at the European level, but rather reflects efforts at providing mutual infor-
mation to improve European competitiveness. In the area of social policy,
where member states are reluctant to involve the European Union, there has
been efforts to engage civil society in which there has been creative use of
its limited competences to promote action plans and non-binding guidelines.
In many instances the EU has promoted and fostered collective action in
social policy, supporting civil society networks and using this consultation to
identify salient issues and push for expanded competence.44 Such consulta-
tion is reflective of what has been described as “integration by stealth” rather
than more formal advocacy or rule-making that characterizes other policy
areas.45
While this represents a stylized typology of different regulatory strategies
in relation to the European Union, there is considerable interaction between
“soft” and “hard” law mechanisms, as soft law exists in relation to hard law.46
More importantly in considering the role of legal harmonization, we need
to acknowledge the combined effects between various types of governance
mechanisms in shaping overall policy coherence and effectiveness.
Traditionally, lawyers seem to prefer traditional mechanisms such as har-
monization that provide uniform rules with flexible amendment procedures
or mutual recognition principles as the most effective way to foster the
internal market.47 In fact, addressing the costs of regulatory differences is
supported by the original legal structure of the treaty (the term used is
“approximation” as well as harmonization). Yet there are also concerns about
the shift away from the traditional “community method” toward treaty provi-
sions that promote differentiated regimes (Article 15 EC 95), new approach
(83/89), or open method of coordination approaches.48 As Armstrong notes,
these new instruments pose challenges to a structural doctrine based on bind-
ing legal rights.49 While there has been increasing acceptance of these carefully
crafted political solutions especially among the academic community, and
considerable promotion of such reflexive, deliberative, or participatory strate-
gies, we need to engage in a substantive analysis of costs and benefits of such
governance structures. It would be a mistake to assume that harmonization is
the better remedy without considering different social norms when pushing
conformity (e.g., cross-border recognition of same sex marriages, or access to
abortions services across member states under freedom of service provisions).
Normative considerations about the impact of community constraints on
member states tend to be downplayed by economists and lawyers interested
in the economic freedoms.
The legal perspective on the internal market tends to focus on the broad
constitutional rules—to determine the extent of prohibitions on economic
freedoms, the legal bases for conferring harmonization, and the use of these
competences. An interesting issue in relation to the single market is the
impact of the uneven development of case law concerning the four freedoms
in the internal market, since coherence and predictability for both market
operators and national regulators is considered a crucial corollary to the effec-
tive functioning of the internal market.50 While historically European case
law was shaped by the free movement of goods, followed by free movement of
workers, the case law in services and rights of establishment owes much to the
expansion of the concept of services that has changed the prevailing economic
reality of services since its original conception in the Treaty of Rome.51
Despite the limits of market integration through case law, national prohi-
bitions have been struck down in fields like company law,52 health care, media
law, and environmental policy. Yet despite the wealth of case law concern-
ing market integration, legislative measures—even modest harmonization
ones—are likely to have more impact on market operators than does case
law in Europe. This consideration brings us to the issue of compliance and
effectiveness in post-legislative politics, where the EU has developed both
management and enforcement mechanisms to promote capacity-building
and dispute-settlement.
Evaluation and Implementation

Studies covering not only transposition but also enforcement and appli-
cation have drawn attention to the “implementation gap” in European
integration. In theoretical terms, most of these contributions derive from
compliance approaches developed in the international relations and inter-
national law literature. The debate is framed between those who see the
problem as enforcement (where the policy tools that are available to han-
dle implementation problems tend to focus on monitoring and sanctions)
and those focusing on management constraints emphasizing administrative
capacity, rule interpretation, and resource issues to gauge compliance with
international regulatory agreements.53
It is interesting and, possibly, useful in the context of this study to consider
the suitability of each of these regulatory strategies and enforcement tech-
niques in the European context. In particular, we need to emphasis the various
methods and tools to ensure implementation and compliance as European
Community institutions use different techniques in different contexts (see
Table 7.3). What is striking about that situation is that, although EU mem-
ber states are entrusted primarily with implementing a wide array of European
policies (with occasional powers conferred on various European institutions),
there are both soft, non-coercive, as well as coercive measures that foster the
essential functioning of the single market. While the “post-legislative” stage
is not high on political agendas, implementation and compliance can lead to
unresolved issues in relation to single market.
Table 7.3 Measures to improve implementation and compliance
Judicial remedies Non-judicial remedies

Infringement proceedings Single market scoreboard
Sanctions and fines (court of justice) Solvit network
Audits (court of auditors) réunions-paquets (informal)
Technical assistance/financial aid
Tripartite consultation/partnerships
Codes of conduct
Guidelines/reporting/monitoring
Twinning arrangements
Administrative guidelines
Coercive Enforcement Strategies

To ensure that states do not defect or violate their treaty obligations, the
European Union has developed a range of monitoring and sanctions mecha-
nisms that impose considerable obligations on state behavior. The principal
instrument once violations have occurred is the infringement procedure.
Under Article 226 the EU Commission and Court ensures direct enforce-
ment of European law to meet treaty obligations. The treaty also provides for
member states to take infringement action against another member state for
breach of treaty rules under Article 227, though this is rarely used.54 How-
ever, before such formal infringement proceedings take place, there are efforts
at informal negotiations to determine if the problem is a result of misapplica-
tion of community law, inadvertent violations, or special deliberate instances
of noncompliance.55 The relationship between national and community law
is crucial especially in relation to traditional issues of control and compliance.
It should be noted that most states wish to avoid litigation and so negotiated
solutions have emerged as a credible and successful strategy under the shadow
of legal judgments.
Yet we have difficulty estimating the implementation deficit as much of
the quantitative analysis available looks at transposition rates, which provide
no indication of whether the law has been correctly or incorrectly applied.
Infringement proceedings (Article 226) give a better sense of inaccurate or
incorrect legal application of European law and provide some indications of
variance of transposition patterns within member states.56 Unlike many inter-
national agreements, however, the implementation of EU law by member
states is supervised by the European Commission and the European Court of
Justice (ECJ). The ECJ has developed a very significant jurisprudence on the
rights and the obligations of national governments in the implementation
process. As Berman states, “case law clearly establishes that neither local
political opposition to Community policy within a Member State nor the

alleged inadequacy of the State’s resources (financial, administrative or politi-
cal) constitutes an adequate excuse for non-compliance with Community law
obligations.”57
It must also be noted that, as well as providing a variety of centralized
dispute settlement procedures, the EU also creates the possibility of pri-
vate rights of action. Companies and individuals monitor state behavior, and
since European law is directly enforceable given the principle of direct effect,
national courts have increasingly allowed individuals under the preliminary
reference procedure to sue national governments for noncompliance.58 Joseph
Weiler (1994) attributes much of the success of the ECJ in gaining compli-
ance with its rulings to the fact that national courts enforce over half of all
ECJ rulings through this decentralized reference procedure.
Non-Coercive (Soft) Measures

Complementing the traditional notions of enforcement are new implemen-
tation strategies that are less coercive and designed to facilitate better and
more efficient implementation. The so-called réunions-paquets, which bring
together EU and national civil servants who, unlike court procedures, discuss
these issues in a non-confrontational manner, has been highlighted earlier in
this chapter. Four other strategies are particularly relevant. First, the EU often
provides guidelines on conformity, and serves as supplemental measures to
broad framework laws. For example, EU guidelines on the application of
competition rules in the telecommunications sector provide assistance on
clearance procedures that determine if investment practices such as cross-
subsidization by public authorities are compatible with competition rules
(under Article 17).
Second, the community can help member states improve their imple-
mentation strategies through targeted assistance measures. The commission
negotiates transitional measures where an acceding country has to make sub-
stantial adjustments to domestic legislation and may provide temporary dero-
gations from certain policy commitments (e.g., Spain and Portugal received
transition periods to adjust to internal market). In Central and Eastern
Europe, twinning practices have enabled accession states to gain technical
and administrative assistance from member states to assist in implementation
of the acquis.
A third example of encouraging implementation stems from newly emerg-
ing efforts at target-based tripartite agreements that seek consultation from
local and regional authorities in framing and implementing regional or
environmental policies in terms of binding law59 The idea is to use local
knowledge in implementing measures, while recognizing the ultimate respon-

sibility of member states for assuring conformity with community obli-
gations. This is especially relevant since the decentralized implementation
structure of the European Union relies on regional and local authorities,
national regulatory agencies, and in some instances para-public agencies
within the member states. And finally, the commission increases pressure on
member states to comply through “naming and shaming strategies.” Such
monitoring measures include the single-market scoreboard as a means of
publicly comparing implementation rates. It also involves the creation of a
problem-solving network (Solvit) in which the member states work together
to solve problems caused by the misapplication of internal market laws by
public authorities, without recourse to formal legal proceedings. Such a dis-
pute resolution network has been able to address a number of legal barriers
across a range of issues, from pension portability to mutual recognition of
professional qualifications.
Addressing such concerns about enforcement and implementation prac-
tices has become increasingly salient on the European agenda, and it is
clearly relevant in assessing the efficiency and effectiveness of the single mar-
ket.60 Given that many European laws (directives) have to be incorporated
into national law, the transposition phase adds another important consid-
eration when pursuing legal harmonization61 Transposition allows member
states to choose the appropriate legal instrument to translate European law
into national laws. As Scharpf has argued, the EU institutional configu-
ration means that suboptimal policies are easily produced—the so-called
joint-decision trap.62
Modernizing the Single Market

Significant attention has been given to the regulatory challenges impeding
the full effectiveness of the single market. Regulatory reforms in Europe
have focused on “good governance,” “better law-making,” and most recently
“regulatory quality.” Such efforts are part of the larger new public man-
agement approaches that have emerged in the European context, where
emphasis is placed on benchmarking exercises, best practice, and institu-
tional learning. While the original treaty was based on economies of scale
and reduced transaction costs, there has been a shift toward focusing on eco-
nomic performance and competitiveness. While some of this is reflected in
business efforts to highlight and promote regulatory simplification, with var-
ious efforts by member states to push economic reform by improving the
business environment.63 The Amsterdam Treaty further stressed the political
commitment to the quality of community legislation, as well as the principles
of subsidiarity and proportionality. This resulted in legislative simplification,

dealing with market distortions, removing barriers to market integration, and
finally ensuring an internal market that benefits all citizens of the European
Union were core priorities.
This effort has continued with the introduction of regulatory impact
assessment involving a systematic appraisal of the costs and benefits associated
with a proposed new regulation and evaluation of the performance of existing
regulations. Some see this as part of a broader debate about “good gover-
nance,” which has been central to debates in the OECD, World Bank, and
other international institutions.64 These public management reforms suggest
that the European Union is striving to promote modes of coordination both
horizontally and vertically that have variable combinations, including coordi-
nation, deliberation, and competition, to manage the increased “communita-
rization” of policy. The tasks of the European institutions are changing, so we
may see a shift from agenda-setting to broader goals of governing, managing,
and administering policies.65 Clearly, the EU is experimenting with new tools
such as regulatory impact assessment, consultation, and simplification. Yet we
do not know if regulatory quality is better under these new instruments than
harmonization, mutual recognition, and approximation of rules.
Yet from the most recent proposals, it is clear that the better functioning
of the internal market has shifted from widening and deepening to reflect the
more explicit challenges facing Europe from globalization, structural change,
and economic diversity. This effort to modernize the single market, under-
taken in 2007 and 2008, and revived again in 2011 with the Single Market
Act is really an effort to link the internal market with other policy areas and to
increase its legitimacy, yet much of what remains to be done require sensitive
national reforms in labor markets and social protection.66 There are severe
limits to what can be accomplished in terms of economic governance, in part
due to the current economic climate, but also due to the remaining “gaps”
in the single market, which to some degree require national action in terms
of promoting structural change, flexicurity, regulatory reform, and economic
coordination. All this does not enhance EU powers or competences toward
fulfilling the gaps in the internal market through political means, but allows
legal jurisprudence to expand the material scope of applications regarding
market integration.
Can the Comparative Experience of the EU Provide Any Lessons?

As the globalization of the economy continues to advance, issues of “deeper”
integration become increasingly important on the international agenda.
However, this chapter illustrates the difficulty of harmonizing the rules,
policies, and institutions of countries with vastly different political, legal, and
administrative traditions. These difficulties have forced a reassessment of var-
ious harmonization strategies and stimulated the search for alternatives to
harmonization. As such, the effectiveness of European law has risen on the
agenda as attention has shifted from the establishment of the single market
toward ensuring that the single market is functioning properly. The “bet-
ter regulation” effort to simplify the legal environment,67 reduce regulatory
burdens, and use impact assessment has been touted as a way of enhancing
European competitiveness in the global economy.68
Yet the effectiveness of the European legal system is based on the compli-
ance and implementation of the legal rules. The situation in Europe reveals
a gap between administrative and legal reality, between formal implemen-
tation and actual operation in practice, as different strategies that are often
widely touted as central to market integration have encountered problems.69
The inherent complexity of such a system of multilevel governance means
that compliance and implementation involve multiple actors, institutions,
and agencies. What has emerged in Europe is a range of “hard” and “soft”
legislative means to influence, structure, and sanction states to implement
law and policy in relation to the single market as well as other related policy
areas.
If the goal is to think about different legislative techniques used by the
EU to integrate markets, in order to remove trade barriers, promote com-
mon policies, and enhance regulatory competition, we need also to ask about
the sort of mechanisms in place to enhance compliance with European law.
While the “establishment” of the internal market is the treaty objective, it can
be accomplished only if common rules and standards or mutual recognition
practices can be agreed upon, and then successfully implemented. Such con-
siderations are also applicable to NAFTA where fostering closer economic and
legal coordination offers an opportunity to experiment with new methods for
securing market access that complement the emphasis on legal harmonization
with additional mechanisms that enhance patterns of compliance.70 Ques-
tions about the effectiveness of different regulatory strategies in achieving the
single market, and what lessons can be drawn from the ability of the EU to
develop functional and effective governance structures, have inspired a rich
scholarly and policy literature over the past decade.71
Deep integration cannot be understood independently of the legal, institu-
tional, and political realities that both create and constrain it. While European
legal systems are making a transition from state-based common and civil
law system to a common European legal system, the institutional and polit-
ical constraints stemming from the form of free trade agreement chosen
by NAFTA continue.72 Despite its many limitations and dim prospects for
eventually forming a single market, consensus on this subject remains elusive

when the discussion moves from general goals to the specific means to achieve
them. As Pastor concludes, this requires “a new mode of governance in North
America, based on rules and reciprocity” that must address the “failures and
externalities of an integrating market”73 (see table 7.1).
Drawing on theories of international political economy, European inte-
gration involves two basic policy objectives: the liberalization of exchange of
goods and services and the provision of socioeconomic collective goods. This
involves reciprocal market liberalization and coordinated policies, as rising
economic interdependence increases trade tensions between uncoordinated
policies, and can foster social dumping and a “race to the bottom,” which
undermines the competitiveness of specific sectors and industry. We might
think about some concrete options that are designed to liberalize distortions
in goods and service markets and coordinate domestic policies to redress
market failures and provide public goods.74
These might include the following: (a) direct effect of rules of certain
chapters of NAFTA (such as goods and services), (b) competition policy
provisions including review of state aids and subsidies, (c) structural adjust-
ment measures, and (d) increased information sharing through notification
of regulations to a clearing house to assess cross-border impact. At least as
important as the regulative capacity of states to ensure economic transactions
is the allocative and distributive capacity of states to deal with problems of
social and economic development. In Europe, there are increased concerns
that the legal emphasis on the economic provisions of the treaty comes at
the expense of the protection of social rights.75 The resulting backlash centers
around the extent to which market competition and international economic
pressure diminish the capacity of states to achieve democratically legitimate
political goals by mitigating the effects of the market.76 Many observers have
been increasingly skeptical, first of the virtues of further economic integration
itself, and then of the broader political viability and sustainability of European
integration, asserting that the process has reached its limits as the costs asso-
ciated with implementing market reform are generating increasing “reform
fatigue.” Whether legal and political liberalization has gone further than EU
citizens are ready to endorse may provide a cautionary note to proposals to
deepen NAFTA.
By examining the European experience, the new modes of governance
suggest that there are a number of issues that might warrant further con-
sideration for those advocating legal convergence within NAFTA. One major
issue is institutional capacity. The transaction costs of overcoming the hetero-
geneity of different regulatory practices are significant. Yet the various efforts
to achieve integration have resulted in institutional innovations. Among the
most significant is the role of mutual recognition that allows for the accep-
tance of mutual equivalence and reciprocity. However, there are significant
problems at the implementation stage in terms of administrative practices
and recognition of regulatory equivalence. This requires mutual trust and
a support structure to ensure compliance. Thus, it would be beneficial to
look at the range of governance mechanisms within the European Union
to understand the suitability of using mutual recognition, open method of
coordination, and other instruments rather than legal harmonization.
This then leads us to consider the second issue, which is one of imple-
mentation and compliance. In the European case, we need to look at efforts
at regulatory notification (mutual information) to prevent the emergence of
potential non-tariff barriers to trade. We also need to look at how effective are
infringement proceedings and whether they are a viable option for address-
ing problems of compliance. This requires a significant horizontal transfer of
sovereignty to allow such dispute settlement mechanisms to work, and it may
be that other informal modes of governance may be more fruitful. Part of the
implementation problem may be the result of different national institutional
capacities, or legal or regulatory cultures. It may be that the style of decision
rules affects policy outcomes as European law includes directives, regulations,
and recommendations.
How much discretion should be given to states in deciding how to imple-
ment common laws is critical as directives allow for more variation than
regulations in the European context. In addition, the European Union adopts
significant secondary rule-making with varying administrative procedures
that allow member states to exercise regulatory oversight and control. Very
little is known about the impact of secondary rule-making even though it is
part of the legal harmonization process. Not much analysis has been done on
the impact of secondary rule-making on the overall effort to deliver common
policies despite the significance of administrative law in shaping regulatory
practices.
The third issue is the extent to which the allocation of regulatory powers
occurs. The expansion of policy fields affected by case law, the reduction of
national provisions in many areas affecting market access, and the application
of the subsidiarity principle all affect European governance. The question is
whether subsidiarity makes sense in a shallow free trade agreement. Deeper
market integration in Europe in goods, capital, labor and technology has
focused attention on what public functions the EU should or should not
consider at the central level, wholly or partially, to deal with macroeconomic
stabilization, cross-border externalities or redistribution. While subsidiarity
requires the EU to demonstrate a need to act in common, what matters
in the market is whether cooperation is credible, and if not, may require
centralization, something that may give pause to those advocating subsidiarity

in the NAFTA context.
Although permissible exceptions are delineated narrowly in the EU, there
is growing concern about the impact of competing visions of the European
Union among member states. The EU is now too diverse to expect all mem-
ber states of the EU to ratify any given treaty or to participate in all areas
of EU activity. The resulting differentiated integration in monetary issues,
defense coordination, and border controls raises new questions about the allo-
cation of competences in divided power systems. Such issues the EU grapples
with have yet to be faced by other regional integration efforts.
Notes
1. Jacques Pelkmans, “European Industrial Policy,” in International Handbook on
Industrial Policy, eds. Sandrine Labory and Patrizo Bianchi (Northampton:
Edward Elgar Publishing, 2006), 45–79.
2. Fritz Scharpf, “The European Social Model: Coping with the Challenges of
Diversity,” Journal of Common Market Studies 40, no. 4 (2002): 645–670 at 647.
3. See Laval case C-34105 and Viking Line Case C438/05.
4. Supra note 2.
5. However, there have been some important recent developments in case law in
field of services. The traditional analysis, instituted when services were a residual
category, has shifted bringing it into line with GATS and WTO, as the Court
has abandoned the artificial distinction between services and establishment. See
C-55/94, Gebhard, [1995] ECR I-4165 and subsequent case law.
6. Henk Kox and Arjan Lejour, “Prospects of Integrating Service Markets” (in EU
presentation/paper at the CTR Conference Towards a Transatlantic Service Mar-
ket February 2007 (based on analysis for the Dutch Bureau of Economic Policy
Analysis)) and European Commission Communication “A framework for target-
based tripartite contracts and agreements between the Community, the States
and regional and local authorities” COM (2002) 709 final.
7. Issues of labor restrictions in CEE are dealt with in Heather Grabbe, The
EU’s Transformative Power. Europeanization through Conditionality in Central and
Eastern Europe (Basingstoke: Palgrave Macmillan, 2006).
8. European Commission Mutual Recognition in the Context of the Follow-up to
the Action Plan for the Single Market. Communication from the Commission
to the Council and the European Parliament. COM (99) 299 final, 16.06.1999.
For example, accession treaties provide the Czech Republic, Hungary and Poland
and Bulgaria and Romania certain transitional agreements with regard to land
markets during which time they can restrict ownership of EU nationals who are
non resident. This is not new—in the opt-out provisions of Maastricht Treaty,
Denmark has the right to maintain its controls over the acquisition of second
homes.
9. There are different estimates of the effects of services liberalization. Kox et al.,
(2004) suggest that intra-European trade in services could increase by 30–60
percent and direct investment by 20–35 percent of the service directive is
implemented.
10. Supra note 2, Copenhagen Economics. Denmark Final Report, 2005. Economic
Impact of the Proposal for a Directive on Service in the International mar-
ket, http://ec.europa.eu/internal_market/services/docs/services-dir/studies/2005-
01-cph-study_en.pdf (accessed September 2, 2005).
11. Fritz Scharpf, Governing Europe (Oxford: Oxford University Press, 1999).
12. Joshua Cohen and Charles Sabel, “Directly-Deliberative Polyarchy,” European
Law Journal 3, no. 4 (1997) and Ann Marie Slaughter, “Disaggregated
Sovereignty: Toward the Public Accountability of Global Government Net-
works,” Government and Opposition 39, no. 2 (Spring 2004):159–190.
13. Giandomenico Majone, “From Positive to the Regulatory State: Causes and Con-
sequences of Changes in the Mode of Governance,” Journal of Public Policy 17,
no. 2 (1997):139–167.
14. David Levi-Faur, “The Global Diffusion of Regulatory Capitalism,” The
ANNALS of the American Academy of Political and Social Sciences 598,
no. 1(2005):12–32.
15. B. Guy Peters, “Forms of informality: Identifying informal governance in
the European Union,” Perspectives on European Politics and Society 7, no.1
(2006):25–40
16. Peter Hall, “Policy paradigms, social learning and the state: the case of economic
policy-making in Britain,” Comparative Politics25, no. 3 (2003): 275–296.
17. Adrienne Heritier, “The Accommodation of Diversity in European Policymaking
and its outcomes,” Journal of European Public Policy 3, (1996):149–67.
18. Gráinne de Búrca and Joanne Scott eds., Law and New Governance in the EU and
US (Oxford: Hart, 2006).
19. Jacques Pelkmans, “Mutual Recognition in Goods and Services: An Economic
Perspective College of Europe,” BEPP series briefing no. 2 (December 2002)
at 3.
20. Supra note 18.
21. Michelle Egan, Constructing a European Market: Standards, Regulation and Gov-
ernance (Oxford: Oxford University Press, 2001) and Harm Scheppel, The
Constitution of Private Governance (Oxford: Hart Publishing 2005).
22. Susanne K. Schmidt, “Mutual Recognition as a New Mode of Governance,”
Journal of European Public Policy 14, no. 5 (2007): 667–681.
23. See Dassonville for measures having equivalent effect to quantitative restriction;
see Cassis for principles of equivalence and see more restrictive interpretation in
Keck. For an overview see Egan 2001.
24. Case 184/96 Commission vs France (1988) ECR I-6197.
25. Member States may invoke reasons of public interest to justify a national measure
where that measure complies with fundamental rights guarantees. For example,
Omega, 2004 ECR I-9069 Non-economic policy reasons recognized by the treaty
as well as additional considerations raised by legal judgments due to an expansive

reading of the treaty can also be included as justified legitimate restrictions.
26. See Directive 2003/71/2003 for example.
27. Pelkmans, Supra note 20 at 1, Michelle Egan, Constructing a European
Market: Standards, Regulation and Governance (Oxford University Press,
2001); UEAPME, “Position Paper on Free Movement of Goods in the
Non-Harmonised Area—Mutual Recognition Elements for a legislative
approach Brussels,” http://www.ueapme.com/docs/pos_papers/2006/060717_
pp_free_movement_goods.pdf, UNICE Paper on Regulatory Reform Brussels
1995.
28. The mid-term review of the Lisbon Strategy did point out the paucity of suc-
cess. The strategy has undergone revisions but it needs to reinforce and promote
national ownership of the process (Pisani-Ferry, 2005).
29. Silvana Sciarra, The Convergence of European Labour and Social Rights: Opening to
the Open Method of Coordination in Bermann and Pistor Law and Governance in
an Enlarged European Union (Oxford: Hart Publishing, 2004).
30. Id.
31. Supra note 13.
32. Derek Beach, “Why governments comply: An integrative compliance model that
bridges the gap between instrumental and normative models of compliance,”
Journal of European Public Policy 12, no. 1 (2005):1–30. and Catherine Barnard,
“The EU Agenda for Regulating Labour Markets: Lessons from the UK in the
Field of Working Time,” in Law and Governance in an Enlarged European Union,
eds. George Bermann and Katherine Pistor (Oxford: Hart Publishing, 2004):
177–208.
33. Id.
34. Claudio M. Radaelli, “The diffusion of regulatory impact analysis in OECD
countries: best practices or lesson-drawing?,” European Journal of Political
Research 43, no. 5 (2004): 725–749.
35. The mutual exchange of information has been expanded beyond that of the single
market and also been advocated for coordination in areas such as immigration
and asylum. COM(2005)0480.
36. Egan, supra note 22.
37. See Michelle Egan ed., Creating a Transatlantic Marketplace (Manchester:
Manchester University Press, 2005).
38. Anthony Zito et al., “ ‘New’ Instruments of Environmental Governance: Patterns
and Pathways of Change,” Environmental Politics 12, no. 1(2003):3–24.
39. Marc Pallemaerts, The Aarhus Convention at Ten: Interactions and Tensions
Between Conventional International Law and EU Environmental Law (Groningen,
The Netherlands: Europa Law Publishing, 2009).
40. Supra note 20.
41. The Code is appended to the ECOFIN conclusions of December 1, 1997. It is
not a legally binding instrument.
42. Claudio Radaelli, “The code of conduct against harmful tax competition: Open
method of coordination in disguise?,” Public Administration 81, no. 3 (2003):
513–531. I have drawn extensively from Radaelli in this paragraph.
43. Id.
44. Laura Cram, “From ‘integration by Stealth’ to ‘good governance’ in EU social
policy,” in Innovative governance in the European Union: The Politics of Multi-
level Policymaking, eds. Ingeborg Tömmel and Amy Verdun (Colorado: Lynne
Reinner, 2009).
45. Giandomenico Majone, Dilemmas of European Integration: The Ambiguities and
Pitfalls of Integration by Stealth, (Oxford: Oxford University Press, 2005).
46. Harm Scheppel, The Constitution of Private Governance (Oxford: Hart Publish-
ing, 2005).
47. Dominik Hanf, “Legal Concept and Meaning in the Internal Market” in The EU
Internal Market in Comparative Perspective, eds. Jacques Pelkmans et al. (Brussels:
Peter Lang, 2008) at 13.
48. Cf. supra note 30.
49. Kenneth Armstrong, “Legal Integration: Theorising the Legal Dimension of
European Integration,” Journal of Common Market Studies 36, no. 2 (1998) at
163.
50. Supra note 48; J. Snell, Goods and Services in EC Law: A Study of the Relationship
Between the Freedoms (Oxford: Oxford University Press, 2002).
51. V. Hatzopoulos, “Legal Aspects of the Internal Market in Services,” in The
EU Internal Market in Perspective, eds. Jacques Pelkmans et al. (College of
Europe/Peter Lang Series: Brussels, 2008).
52. For example, challenging special rights of member states to retain golden shares
over formally publicly owned companies.
53. Abram Chayes and Antonia Handler Chayes, The New Sovereignty: Compliance
with International Regulatory Agreements (Harvard: Harvard University Press,
1996); Cliff Carruba, “Courts and Compliance in International Regulatory
Regimes,” Journal of Politics 67, no. 3 (August 2005): 669–689; Jonas Tallberg,
“Paths to Compliance: Enforcement, Management, and the European Union,”
International Organization 56, no. 3, (Summer 2002): 609–643; Gerda Falkner
et al., Complying With Europe: EU Harmonization and Soft Law in the Member
States (Cambridge: Cambridge University Press, 2005).
54. Tallberg, Id. at 616.
55. Falkner, Id.
56. Oliver Treib, “Implementing and complying with EU governance outputs,” in
Living Reviews of European Governance, http://europeangovernance.livingreviews.
org/Articles/lreg-2008-5/Accessed July 4, 2012. Quantitative analysis of pre-
liminary rulings and direct actions have found that courts are strategic actors
seeking to maintain their legitimacy by avoiding rulings that will be rejected
(Daniel Kelemen, “The Limits of Judicial Power: Trade-Environment Dis-
putes in the GATT/WTO and the EU,” Comparative Political Studies 34,
no.6 (2001): 622–650). When a simple majority of member states articulates
support for a national rule the court is unlikely to rule against majority pref-
erences (Geoffrey Garrett, Daniel Kelemen, and Heiner Schulz, “Legal Politics
in the European Union,” International Organization 52, no. 1 (Winter 1998):
149–176).
57. George Bremann and Kattharina Pistor, “Introduction,” in Law and Governance
in an Enlarged European Union, eds. George Bermann and Katherine Pistor
(Oxford: Oxford hart Publishing, 2004) at xvi; Francovich v. Italy, Cases C-6,
9/90, [1991] ECR 5357; Brasserie du Pecheur SA v. Germany, and The Queen
v. Secretary of State for Transport ex parte Factortame Ltd., Joined Cases C-46,
48, [1996] ECR I-1029.
58. Karen Alter, Establishing the Supremacy of European Law (Oxford: Oxford
University Press, 2001).
59. See Communication “A framework for target based tripartite contracts and agree-
ments between the Community, the States and regional and local authorities”
COM (2002) 709 final.
60. Supra note 22.
61. Jeffery Pressman and Aaron Wildavsky, Implementation: How Great Expectations
in Washington are Dashed in Oakland; or, Why it’s Amazing that Federal Pro-
grams Work at all. (Berkeley: University of California Press, 1984). A directive
“shall be binding, as to the result to be achieved upon each Member State to
which it is addressed, but shall leave to the national authorities the choice of
form and methods.” EC Treaty, art. 189.
62. Fritz W. Scharpf, “The Joint-Decision Trap. Lessons from German Federalism
and European Integration,” Public Administration 66 (1988): 239–287.
63. UNICE, 1995; Molitor Report, “Report of the Group of Independent Experts
on Legislative and Administrative Simplification” COM 5, 288 final, Brussels
June 21, 1995.
64. Claudio Radaelli and Fabrizio De Francesco, Regulatory Quality in Europe
Concepts, Measures and Policy Processes (Manchester: University Press,
2006).
65. Claudio M. Radaelli, “Governing European Regulation the challenges ahead,”
RSC Policy Paper no. 98/3 (Florence: European University Institute, 1998).
66. Jacques Pelkmans, “Economic Concept and Meaning of the International Mar-
ket,” in The EU Internal Market in Comparative Perspective, eds. J Pelkmans et al.
(Brussels: Peter Lang Publishers, 2008).
67. As outlined in the renewed “Lisbon Strategy” (2005).
68. Andrea Renda, “Impact Assessment in the EU: The State of the Art and the Art of
the State,” http://aei.pitt.edu/32591/1/30._Impact_Assessment_in_the_EU.pdf
Accessed July 4, 2012 C.M. Radaelli, “Getting to grips with quality in the diffu-
sion of regulatory impact assessment in Europe,” Public Money and Management
24, no. 5 (October 2004): 271–276.
69. Egan, supra note 22; Pelkmans, supra note 2, Falkner et al., supra note 56.
70. Roland Bieber and Micaela Vaerini, “Implementation and Compliance: Stim-
ulus for New Governance Structures in the Accession Countries,” in Law and
Governance in an Enlarged European Union, eds. George Bermann and Katherine

Pistor (Oxford: Hart Publishing, 2004) at 389.
71. Francesca Duina, The Social Construction of Free Trade: The European Union,
NAFTA and Mercosur (Princeton: Princeton University Press, 2006); Robert Pas-
tor, Toward a North American Community: Lessons from the Old World for the
New (Washington, D.C.: Institute of International Economics, 2001); Armand
de Mestral and Jan Winter, “Giving Direct Effect to NAFTA,” in IRPP, The Art of
the State II, no. 6 (2004): 35–98; Michael Hart, “Is There Scope for Enhancing
the Mobility of Labour Between Canada and the United States?” Paper prepared
for Industry Canada, March 2004. http://www.ic.gc.ca/eic/site/eas-aes.nsf/eng/
ra01934.html (accessed July 31, 2012).
72. H. Patrick Glenn, “Conflicting Laws in a Common Market? The NAFTA Exper-
iment,” Chicago-Kent Law Review 76, (2001):1789–1819.
73. Robert A. Pastor, “North America’s Second Decade,” Foreign Affairs 83,
no. 1 (2004):124–135; Robert A. Pastor, “A North American Community,”
Norteamerica 1, no. 1 (January 2006) at 212.
74. Pelkmans, supra note 2. I am not suggesting the Europeanization of social/welfare
policies here given different welfare regimes, but issues such as macroeconomic
stability, and public health and safety standards.
75. This has led to a substantial debate in Europe around the utilitarian functions of
the single market. This is well-known in legal theory between efficiency oriented
and distribution-oriented standards of legitimacy. See especially the work of Fritz
Scharpf, Christian Joerges, and Poiares Maduro.
76. Fritz Scharpf, Governing Europe (Oxford: Oxford University Press, 1999) at
Chapter 1.
CHAPTER 8
Conclusion: The NAFTA Region—a

View from the Current Mexican
Agenda
José Antonio Caballero Juárez
I
n late 2003, Vicente Fox, president of Mexico (2000–2006), sent to
Congress a bill to reform the Federal Criminal Code and the National
Health Statute. The objective was to generate the proper incentives for
state and municipal authorities to get involved in addressing the problems
that drug trafficking and drug consumption generate. Some of the bill’s pro-
visions established that the consumption of certain illegal substances would
not be punished so long as the arrested persons were able to prove that they
were consumers as opposed to dealers. Two years later, Congress passed the
bill.1 The media began covering this issue under the assumption that this
reform implied some sort of “soft legalization” of drugs.2 However, in a quite
surprising move, once the bill was ready to be enacted, President Fox decided
to veto it.3 Many sources attributed this change of course to the pressure that
the U.S. government exercised over President Fox’s administration.4
This example shows that even the decision-making process in a field as
sensitive as criminal law is a matter of debate inside the NAFTA region. This
observation also is confirmed by several other examples provided within this
book. Perhaps, in a predominantly silent way, legal construction happens to
be a very relevant issue for the North American agenda. The case of regional
security is quite compelling when viewed in light of the difficulties that arise
when the transportation of goods faces strict border regulations.5 There are
clear examples on the role of harmonization; however, the close relationship
among the three countries and their shared market also produces interaction

176 ● José Antonio Caballero Juárez
in several other ways where informality or semi-formality (lobbying) often

operate.6
The chapters included in this book provide a wide variety of views on the
challenges that the NAFTA region faces. As Matthew T. Simpson’s chapter
suggests, the debate for harmonization aside, there are several areas where
communication and collaboration are required, and there seems to be a weak
policy approach from the three countries over that perspective. My approach,
along those lines, will be in focusing upon issues that arise from a Mexican
perspective. Accordingly, the current situation in Mexico with public security
and organized crime has to have a necessary impact over the debate. But there
are, also, other pressing issues in the agenda. Such is the case with recent
constitutional amendments that force us to revisit topics as basic as the role
of treaties and international law inside the Mexican legal system.7
I will first consider the security issues that Mexico is currently facing in
light of the impact that they have over the NAFTA region. This discussion
will consider questions regarding coordination and collaboration between
the three countries in this area that have to do not only with operational
activities but also with the drafting and implementation of laws. Second,
I will develop some considerations in light of the way in which the Mexican
Supreme Court is reconfiguring several institutions in the Mexican legal sys-
tem. This debate will focus mainly on two issues: the role of international
law inside the Mexican Legal system and the new approaches to federalism
through constitutional amendments and judicial precedents. In both cases,
I expect to provide some insights into the way in which the reconfiguration
of the Mexican legal system may impact the NAFTA region.
Security and Criminal Law in the NAFTA Region

Regional security was not a relevant topic within the NAFTA region until
9/11. After 9/11, the concept of regional security began to take form. How-
ever, most of its contents were drawn from the priorities identified by the
United States in light of terrorism threats.8 The impact over the region mainly
focused on collaboration in border security.9 Recent developments in the
region and, particularly, in Mexico are starting to widen the regional secu-
rity concept to incorporate international organized crime as well as human,
drug, and weapon trafficking.10 In this context, one of the most important
challenges for the region is to reduce the imbalance that exists between the
three countries. While Canada and the United States have a long record of
active collaboration in bilateral security and defense initiatives, Mexico is far
behind.11
Conclusion ● 177
Mexico is in the middle of a terrible confrontation that involves several

criminal groups and the government.12 The confrontation’s most visible side
certainly occurs inside Mexico. However, there are several issues that deserve
to be analyzed from a regional perspective. After all, many of the problems
that cause the confrontation are fed by flows: flow of drugs, flow of money,
flow of weapons, and flow of people. Collaboration in these areas is, at best,
uneven.
While, in some cases, collaboration and assistance are clearly visible, in
other cases, distrust and unilateral actions persist. On the collaboration side,
there are projects with a very wide scope, such as the Merida initiative.13
A clear example of distrust and the difficulties of coordinating actions, includ-
ing legislation, is gun trafficking. The United States has sponsored at least two
undercover operations that address weapon trafficking inside Mexico. It is still
unclear if there was some sort of notice to Mexican authorities on the oper-
ation. What seems to be clear is that a large part of the weapons that have
recently been secured in Mexico come from U.S. sources.14
The region also experiences other illicit activities that may be more silent
but not less complex or harmful. Outflows of illicit capital from Mexico
experienced an important increase after NAFTA.15 Estimations also suggest
that trade mispricing generated a large part of the illicit flows, and this
phenomenon increased after NAFTA.16 Alternatives to deter this practice
include the automatic exchange of tax information, which is already oper-
ating between Canada and the United States but has not been implemented
for Mexico.17
Recent Changes in Mexican Constitutional Law

In 2011, the Mexican Constitution was amended to incorporate several pro-
visions that sought to increase the recognition and protection of human
rights.18 Article 1 of the Constitution states, in its first paragraph, that human
rights protections contained in treaties will be considered part of the Con-
stitution’s fundamental rights. Along with this amendment, a resolution by
the Inter-American Court of Human Rights against Mexico was included in
the amendment. This theme was central to the 2009 Supreme Court case of
Radilla-Pacheco v. Mexico.19 Several questions arose when Mexican authori-
ties began discussing how to comply with the resolution. Guillermo Ortiz,
then chief justice of the Mexican Supreme Court, submitted to the court a
series of questions as to the extent to which the federal judiciary had to com-
ply with the Inter-American Court’s resolution.20 The Supreme Court had
to decide whether the Inter-American Court had jurisdiction over the case
in light of the conditions and reservations made by Mexico when it accepted
such jurisdiction. Because the case involved a forced disappearance that hap-
pened in 1974 (and over which Mexico accepted jurisdiction in 1999), the
Supreme Court had to decide whether the Inter-American Court’s decision
overextended its mandate.
There also were questions regarding Mexico’s reservations to the Inter-
American Court’s jurisdiction.21 In July 2011, the Supreme Court heard the
case and provided a much contested resolution. A majority of justices agreed
that reservations and interpretative clauses may not be analyzed once there is
a resolution by the Inter-American Court. The justices also agreed that the
federal judiciary was bound by resolutions of the Inter-American Court.22
The Radilla case represents an important step in the recognition by
Mexican Courts of resolutions made by international courts. However, the
justices continue to argue about the way in which treaties should be incor-
porated into Mexican law. In this case, the problem is Article 1 of the
Mexican Constitution and the status that it provides to human rights guar-
antees contained in treaties that subsequently have been incorporated into
the Constitution. In a way, this phrasing may create two standards. The
first one is that any rule contained in a treaty that protects a human right
will be considered part of the rights recognized by the Mexican Constitu-
tion. The second standard is that any other rule contained in a treaty will be
incorporated into the Mexican legal system in accordance with the existing
rules. The resolution to this problem is, still, pending.23 The justices con-
tinue to debate the strength of human right clauses in treaties vis-à-vis the
Constitution.
The previous two cases provide us with a few insights into the Mexican
interpretation of treaties and judgments. First, Mexican Courts will follow
judgments by international tribunals with deference. A very similar sta-
tus is recognized to arbitration awards.24 Second, arguments based on the
possible infringement of human rights will be taken into consideration in
deciding questions that have to do with the enforcement of statutes or any
administrative decision-making process.25
Constitutional amendments, as well as their judicial interpretations, also
have had an impact over the federal framework. The case of gas stations in
Ciudad Juárez can be useful to illustrate this point.26 In this case, the federal
government challenged municipal regulations of Ciudad Juárez that deter-
mined that the minimum distance between gas stations in the city was to be
restricted to 1,500 meters. According to the federal government, the city did
not have the authority to regulate within that subject area. The city argued
that the regulation was based on its general authority to regulate public safety.
Eventually the city prevailed on the constitutional merits of its arguments.27
This controversy represents a clear example of the way in which federalism
Conclusion ● 179
in Mexico is facing important developments, and the interaction between

federal, state, and municipal authorities is not the same as it used to be a few
years ago.
Conclusions
After almost 20 years of the NAFTA experience, things have changed.28 The
Mexican legal system has transformed itself in several respects.29 But how does
that change look for the future of the NAFTA region?
In Chapter 1, Mathew T. Simpson mentions two challenges for harmo-
nization: the differences between the civil and the common law systems, and
federalism. That second challenge, federalism, is changing in Mexico. It is
hard to say how much further it will change. Several constitutional amend-
ments have been passed in this area, and there is no reason to believe that they
will stop, soon.30 At this point, the characterization of Mexico as a centralized
federalist country needs to be reviewed. In some areas, the federal government
remains strong. Still, in many other areas, state and municipal governments
are becoming relevant players.
The impact of the new human rights regime in Mexico is also worth con-
sidering.31 New procedural alternatives, as well as the expansion of human
rights within the Constitution, most likely will result in a wide variety of
cases in this area being brought before the courts.32 As James T. McHugh
notes in Chapter 4, this subject has been important to Mexico’s revolutionary
heritage. He also has noted, elsewhere, the significance of the country’s civil
law system in this respect.33
On the other hand, the differences between the civil and the common
law systems have not proven to be such an important obstacle, thus far.
Many chapters in this book document the way that not only Mexican insti-
tutions but also similar institutions in Quebec or in Louisiana have been able
to sustain active exchanges without significant problems. Nevertheless, the
legal practices that have resulted from NAFTA remain far from most of the
mainstream legal problems in Mexico.
As Peter Glenn suggests in Chapter 2, the informal process of harmoniza-
tion will keep producing solutions to the day-to-day issues that arise within
the NAFTA region. A rising number of Mexican lawyers are specializing
in business transactions relevant to NAFTA and its legal practices and reg-
ulations.34 Their activities seem to be paving that informal path to future
harmonization within North America. At this point, it is hard to assess how
deep these changes have been or will be. For example, the drafting of con-
tracts may be an area where the influence of NAFTA may be observed in this
respect.35 Still there is no hard evidence of these changes in other legal areas.
A more pressing issue for collaboration and cooperation has to do with the
agendas of the three countries of the NAFTA region. It seems that a trilateral
policy for the region is far from being reached. Most of the actions take
place from the bilateral perspective. The Mexican agenda is, currently, quite
clear, and it is focused upon the United States. Immigration issues remain
a priority of this agenda. However, security and criminal justice also remain
pressing issues. This development is the point at which there seems to be
an opportunity for the development of more stable institutions inside the
NAFTA framework, as some of the chapters in this book suggest.
Notes
1. Bill presented to Congress, January 7, 2004. The bill was passed by the House
and the Senate in April, 2006, Dictamen de las Comisiones unidas de Justicia,
Salud y Seguridad Social y Estudios Legislativos Segunda, de Senado de la
República, Gaceta del Senado, April 27, 2006. http://www.senado.gob.mx/index.
php?ver= sp&mn= 4&sm= 2&f= 2006/4/27 (last accessed June 2012).
2. “Aprueba Senado ley que permite portación mínima de drogas,” El Univer-
sal, April 28, 2006. http://www.eluniversal.com.mx/notas/345730.html (last
accessed March, 2012).
3. La Presidencia de la República reconoce el trabajo que el Congreso de la Unión
realize en torno a las reformas a la Ley General de Salud y a los Códigos
Penal Federal y Federal de Procedimientos Penales. http://fox.presidencia.gob.
mx/actividades/comunicados/?contenido= 24768 (last accessed March, 2012).
4. See, for example, “Under U.S. Pressure, Mexico President Seeks Review of Drug
Law,” New York Times, May 4, 2006. http://www.nytimes.com/2006/05/04/
world/americas/ 04mexico.html (last accessed March 2012).
5. Greg Anderson, “The Fragmentation and Integration of North American Gover-
nance: Border Security and Economic Policy for the Obama Administration,” 2
SPP Briefing Papers, Focus on the United States, School of Public Policy, University
of Calgary, no. 4 (October 2009), p. 15.
6. See Glenn, Chapter 2, on foreign governments or enterprises interacting with
regional or local actors to argue in favor of certain policies.
7. The amendments include reforms to the criminal justice system, the writ of
amparo, and human rights—see the decrees published in Diario Oficial de la
Federación June 18, 2008; June 6, 2011; and June 10, 2011.
8. Angeles M. Villarreal and Jennifer E. Lake, “Security and Prosperity Partnership
of North America: An Overview and Selected Issues,” CRS Report for Congress,
Congressional Research Service, January 22, 2010.
9. Anderson, p. 3, n. 5.
10. Eric L. Olson and Christopher E. Wilson, “Beyond Merida: The Evolv-
ing Approach to U.S.-Mexico Security Cooperation,” Working Paper Series on
U.S.-Mexico Security Cooperation, Woodrow Wilson International Center for
Conclusion ● 181
Scholars, Mexico Institute-Transborder Institute, University of San Diego, May

2010, p. 3.
11. Danille Goldfarb, The Canada-Mexico Conundrum: Finding Common Ground,
Backgrounder, Border Papers, C.D. Howe Institute, July, 2005, p. 7.
12. It is estimated that 48,000 people were killed between 2006 and 2011. Ashley
Fantz. “La lucha contra el narco en México: muertos a cambio de millones,”
CNN, January 20, 2012. http://mexico.cnn.com/nacional/2012/01/20/la-lucha-
contra-el-narco-en-mexico-muertos-a-cambio-de-millones (last accessed March
2012).
13. United States Government Accountability Office. Mérida Initiative. “The United
States Has Provided Counternarcotics and Anticrime Support but Needs Better
Performance Measures,” Report to Congressional Requesters, July 2010. http://
www.gao.gov/ new.items/d10837.pdf (last accessed March 2012).
14. Charlie Savage, “Documents Reveal Reactions to Disputed A.T.F. Investigations
in Arizona,” The New York Times, October 31, 2011; “Gun Walking the Mexican
Border,” The New York Times, November 6, 2011.
15. Dev Kar, Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the
Underground Economy, Global Financial Integrity, January 2012, p. 5. The report
estimates that in the 17 years that followed, NAFTA illicit financial outflows
averaged 6.3 percent of the GDP.
16. Id., p. 47.
17. Id., p. 55.
18. Diario Oficial de la Federación, June 18, 2008; June 6, 2011; and June 10, 2011.
19. Radilla-Pacheco v. Mexico, Series C, no. 205, Judgment of November 23,
2009.
20. Consulta a trámite, expediente Varios 912/2010, Suprema Corte de Justicia de la
Nación.
21. Mexico’s recognition of the Inter-American Court’s jurisdiction was published on
February 24, 1999, in the Diario Oficial de la Federación.
22. Resolution of expediente varios 912/2010. http://www2.scjn.gob.mx/red2/
expedientes/ (last accessed June 2012).
23. The most recent debate over those issues is visible in the transcripts of the
Mexican Supreme Court’s debates en banc, Sessions of March 12 and 13,
2012. http://www.scjn.gob.mx/pleno/paginas/ver_taquigraficas.aspx (Last visited
March 2012). The justices were debating the case: Contradicción de tesis
293/2011 (Pleno, S.C.J.N.).
24. Some relevant precedents on arbitration: Amparo directo 8/2011(Primera Sala,
S.C.J.N., June 29, 2011), Amparo en revisión 195/2010 (Tercer Tribunal
Colegiado en materia civil del primer circuito), Amparo en revisión 2160/2009
(Primera Sala, S.C.J.N., September 8, 2010), Amparo en revisión 131/2009
(Primera Sala, S.C.J.N., May 27, 2009), Amparo en revisión 560/2007 (Primera
Sala, S.C.J.N. October 31, 2007), and Contradicción de tesis 40/2007 (Primera
Sala, June 13, 2007). A website that has relevant information on arbitration in
Mexico: http://www.gdca.com.mx (last accessed March 2012).
25. The extent to which this consideration will occur remains under review by the
Mexican Supreme Court, Sessions of March 12 and 13, 2012. http://www.scjn.
gob.mx/ pleno/paginas/ver_taquigraficas.aspx.
26. Controversia Constitucional 21/2006 (Pleno, S.C.J.N, March 24, 2008). Also
relevant for federalism: Controversia Constitucional 54/2009 (Pleno, S.C.J.N,
May 27, 2010) and Controversia Constitucional 72/2008 (Pleno, S.C.J.N.
May 12, 2011).
27. Controversia Constitucional 21/2006 (Pleno, S.C.J.N, March 24, 2008). Also
relevant for federalism: Controversia Constitucional 54/2009 (Pleno, S.C.J.N,
May 27, 2010) and Controversia Constitucional 72/2008 (Pleno, S.C.J.N.
May 12, 2011).
28. Still, as McHugh shows, there are very many diverse institutional settings in the
región—see Chapter 4.
29. A recent account on the changes of the legal system in Mexico is Sergio López
Ayllón and Héctor Fix Fierro, “La modernización del sistema jurídico (1970–
2000)” in Elisa Servín, Del nacionalismo al neoliberalismo, 1940–1994, Historia
crítica de las modernizaciones en México (México: Fondo de Cultura Económica,
2010).
30. For example, Article 73 of the Mexican Constitution regulates Congress’ attribu-
tions. This article has been amended more than 30 times since 1994.
31. In this case, there may be an impact on Chapter 11 litigation—see, for example,
Susan Karmanian’s remarks on Glamis Gold, Ltd. v. United States in Chapter 6.
32. There are two relevant amendments from a procedural perspective. The first one
is class actions. The second one is a reconfiguration of the writ of amparo. Both
amendments were invoked in 2011.
33. James T. McHugh, Comparative Constitutional Traditions (New York: Peter Lang,
2003), pp. 188–189.
34. Héctor Fix Fierro y Sergio López Ayllón. “¿Muchos abogados, pero poca pro-
fesión? Derecho y profesión jurídica en el México contemporáneo,” Fix Fierro,
Héctor (editor). Del gobierno de los abogados al imperio de las leyes. Estudios socio-
jurídicos sobre educación y profesión jurídicas en el México contemporáneo (México:
UNAM, 2006).
35. There are no empirical assessments available on this subject matter. Neverthe-
less, a review of two websites that register contracts provides some insights
into the way in which contract drafting may be changing, Comisión Nacional
para la Protección y Defensa de los Usuarios de Servicios Financieros, http://
e-portalif.condusef.gob.mx/reca/_index.php (last accessed March 2012), and
Procuraduría Federal del Consumidor, http://burocomercial.profeco.gob.mx/
BC/faces/inicio.jsp (last accessed March 2012).
Contributors
José Antonio Caballero Juárez is Professor at the Centro de Investigación y Docencia

Económicas, A.C. (CIDE) in Mexico City. Professor Caballero is the former Director
of the Legal Studies School at CIDE. His publications include books and articles on
judicial reform, court performance, criminal justice reform and legal history. Professor
Caballero has participated in cases argued in the Mexican Supreme Court on due
process and human rights.
Arthur Cockfield is Associate Dean and Associate Professor of the Queen’s University
Faculty of Law. He is an expert on NAFTA tax law and policy and his book on this
subject was short-listed for the prestigious Doug C. Purvis Memorial Award for a work
of excellence in Canadian economic policy. Dean Cockfield is a recipient of a Charles
D. Gonthier Research Fellowship from the Canadian Institute for the Administration
of Justice, an American Tax Policy Institute research grant, a Canadian Federation for
the Humanities and Social Sciences publication grant, and multiple Social Science
and Humanities Research Council research grants, including in connection with the
Globalization of Personal Data project. He also has published widely on technology,
privacy, and taxation law.
Michelle Egan is Associate Professor and Coordinator for the European and Russian
Studies program in the Comparative and Regional Studies Division of the School of
International Service of American University. She also was awarded a Jean Monnet
Chair in European Integration. Dr. Egan has been awarded a German Marshall Fund
Fellowship, Robert Bosch Fellowship, a German-American Academic Council Fel-
lowship, a Jean Monnet Fellowship, and a Howard Foundation Fellowship. She is
currently European Council Co-Chair and a member of the American Consortium
for European Union Studies. Dr. Egan has published a variety of books and arti-
cles focusing on comparative politics and international relations of Europe and is the
recipient of a number of fellowships and awards for her teaching and curriculum
development work.
H. Patrick Glenn is Peter M. Laing Professor of the McGill University Faculty of

Law. Professor Glenn is former Director of the Institute of Comparative Law and,
in that capacity, worked on projects on the reform of the Russian Civil Code and
184 ● Contributors
judicial education in China. He is a member of the Royal Society of Canada and

the International Academy of Comparative Law and has been a Bora Laskin National
Fellow in Human Rights Law, a Killam Research Fellow, and a Visiting Fellow of
All Souls College, Oxford, as well as Visiting Professor at l’Université de Sherbrooke,
l’Université de Montréal, l’Université de Fribourg in Switzerland, l’Université d’Aix
in France, the University of Silesia in Poland and l’Université française du Pacifique.
Professor Glenn received the prestigious Prix Léon-Gérin from the Government of
Québec in recognition of his career-long contribution to comparative law.
Susan L. Karamanian is Associate Dean for International and Comparative Legal

Studies and Professorial Lecturer in Law at the George Washington University Law
School. Dean Karamanian was vice president of the American Society of International
Law and, also, served as a counselor of the Society. She is a member of the board of the
Center for American and International Law, the Washington Foreign Law Society, and
the Texas Appleseed Foundation, and enjoyed a distinguished career as a practitioner
concerning foreign and domestic commercial disputes. She also is a member of the
Council on Foreign Relations and the American Council on Germany and a fellow
of the American Bar Foundation and the Texas Bar Foundation. Dean Karamanian
is an expert on international law, investment disputes, and the death penalty, hav-
ing represented inmates on Texas death row in their post-conviction appeals. She has
published widely on international law, international investment, law and economics,
international arbitration, and capital punishment.
James T. McHugh is Professor and Chair of the Department of Political Science

and a Research Fellow of the Ray C. Bliss Institute of Applied Politics at the Univer-
sity of Akron. He was a Visiting Professor in the School of International Service and
Associate Director for the Center for North American Studies at American Univer-
sity and, also, formerly Professor of Political Science, Director of the Legal Studies
Program, and Coordinator for the North American Studies Program at Roosevelt
University in Chicago. He has published widely in comparative constitutional law,
political philosophy, Canadian and Quebec politics, legal philosophy, and political
history. Dr. McHugh also has served as Editor-in-Chief of The New England Journal
of Political Science, Secretary-Treasurer of the Association for Canadian Studies in the
United States, and President of the Illinois Political Science Association.
Robert A. Pastor is Professor of International Relations and Founder and Co-Director

of the Center for North American Studies at American University. He was Director of
Latin American and Caribbean Affairs on the National Security Council, nominated
to be United States Ambassador to Panama, and has served as a Consultant to the State
and Defense Departments. He also was a Professor at Emory University and Founder
of the Americas Program at the Carter Center. He was a Fulbright Professor at El
Colegio and a Visiting Professor at Harvard University, where he earned his M.P.A.
in Public Administration at the Kennedy School of Government and his Ph.D. in
Political Science. Dr. Pastor is the author of 17 books, including The North American
Contributors ● 185
Idea, Toward a North American Community: Lessons from the Old World for the New
(2001) and Limits to Friendship: The United States and Mexico (1988), with Jorge
Castañeda.
Matthew T. Simpson is an Attorney with Weil Gotshal and Manges LLP, and a
Peace Fellow with the Public International Law & Policy Group (PILPG). Currently,
Mr. Simpson advises key stakeholders in the ongoing Sudan (Darfur and Southern
Sudan) and Cyprus peace processes. Previously Mr. Simpson assisted the Iraqi Consti-
tutional Review Commission in the 2007 round of Iraqi constitutional amendments
and advised the Republic of Montenegro on issues relating to genocide claims at the
International Court of Justice. In 2007, Mr. Simpson traveled to Northern Cyprus
and assisted a group of Turkish Cypriots with the drafting of an electoral disenfran-
chisement claim at the European Court of Human Rights and the strategic and tactical
decisions associated with bringing such a claim. In early 2008 Mr. Simpson advised
central figures in the Darfuri Diaspora around the world on their involvement in the
Darfur Peace process and the appropriate methods for establishing the rule of law and
achieving sustainable peace. He also has served as a Project Director at the Center for
North American Studies at American University.
Jay L. Westbrook is Benno C. Schmidt Professor of Business Law at the Univer-

sity of Texas at Austin School of Law. He is one of the nation’s most distinguished
scholars in the field of bankruptcy and a pioneer in empirical studies in this area.
Professor Westbrook serves as a consultant to the International Monetary Fund and
the World Bank and also has served as the United States Reporter for the American
Law Institute’s Transnational Insolvency Project and as co-head of the United States
delegation to the United Nations Commission on International Trade Law conference
on international insolvency. He is a director of the International Insolvency Institute,
has published widely on bankruptcy law, commercial law, international business liti-
gation, and law and economics and twice has been named the Outstanding Teacher
of the University of Texas Law School.
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Index
ADF Group vs. United States (2001), federal system, 13–14, 41, 45–6, 60,
101–2, 103, 105, 111–12 68–70
Administrative Law, 12, 66, 67, 80, 90, history, 58–9
93, 95, 96, 99, 102, 103, 104, judicial system, 16, 45, 47, 48, 49
162, 168 legal system, x, 16, 45, 84, 85, 139
Alito, Samuel, 92 political institutions, 64–5, 69, 73,
American Institute of International 141
Law, 10 Canada-United States Free Trade
American International Law Project, 10 Agreement, 16, 44–5
American Law Institute, 22, 84 Canadian Goods and Services Tax, 139,
Arbitration Tribunals. see North 140
America Free Trade Agreement, China, 143
dispute resolution Civil Law Systems, x, 11–13
Azinian vs. Mexico (1999), 99–100, Comité Maritime International, 26
108 Common Law Systems, x, 11–13
Costa Rica, 10–11
Bankruptcy Law, 21–3, 29–30, 49, 83–5 Criminal Law, 24
Bates vs. Dow Agrosciences (2005), 92 Cross-Border Insolvency Concordat, 22
Bilateral Investment Treaties (BIT), 81,
82, 93–4, 95–6, 139 European Union, 1, 4–5, 18–20, 25, 41,
Bilateral Tax Treaties, 139–40, 141 46, 50, 69–70, 73, 79–80, 125–6,
United States Model Bilateral 127–9, 132, 133, 134, 149–56
Investment Treaty, 93 Amsterdam Treaty of 1999, 164–5
United States-Uruguay Bilateral European Bank for Reconstruction
Investment Treaty, 93–4 and Development, 27
Bustamante Code, 10 European Commission, 19, 127, 128,
158, 162
California, 105–6, 107 European Court of Human Rights, 45
Calvo Doctrine, 95 European Court of Justice, 19–20,
Canada, ix, x–ix, 1, 2, 7, 11, 16, 29, 45, 80, 82, 127, 128–9, 162–3
58–60, 89, 91, 97, 125, 129–30, informal implementation measures,
176, 177 163–4
bilingualism and multiculturalism, Single European Act, 127, 149, 165
58–9, 60 Treaty of Rome, 125–6, 127–8, 129,
constitutional tradition, 4, 58–60, 69 161
208 ● Index
Federal Insecticide, Fungicide, and International Law Association, 26

Rodenticide Act (FIRFRA), 92 International Monetary Fund, 27
Federalism, 13–14, 41, 42, 45–6, 68–73 International Thunderbird Gaming Corp.
Feldman vs. Mexico (2002), 138 vs. Mexico (2006), 104, 109
Fish, Hamilton, 9–10 Ireland, 159
Fox, Vicente, 175
France, 58 Labor Law, 3, 26, 60, 61, 70–1, 129,
Free Trade Agreements, 93–4, 95–6 131, 136, 153–4, 157
Latin America, 95
Gami Investments, Inc. vs. Mexico (2003), Locke, John, 67
105 Loewen vs. United States (2001), 81–2,
Gaviria, Cesar, 13 85, 102
General Agreement on Tariffs and Trade
(GATT), 137–9
Massachusetts, 97
Glamis Gold, Ltd. vs. United States
MERCOSUR, 26
(2009), 105–6, 107, 108–9,
Metaclad Corp. vs. Mexico (2000), 91–3,
111–12
94, 100
Gotlieb, Alan, 41
Methanex vs. United States (2005), 104
Great Britain, 58, 158
Mexican Value-Added Tax, 139
Hague Conventions, 43 Mexico, ix, x–xi, xii, 1, 2, 6, 7, 11, 16,
Harmonization of Law, xi, 1, 2, 3, 4–5, 24, 29, 39, 47, 57, 60, 81, 89, 125,
8–11, 14–15, 19, 21–4, 26–30, 41, 129, 130, 175, 176–7, 180
43, 49–50, 90–4, 96–9, 108–12, Church and State, 61
129, 130, 134, 155–8, 165–6, 176 constitutional tradition, 4, 60–2, 68,
Hatch-Waxman Act of 1984, 97, 99 71, 177–9
federal system, 13–14, 70–1,
Immigration Law, 25–6, 180 175
Insolvency. see Bankruptcy Law history, 60–1, 70
Intellectual Property, xi, 15, 23–4, 149 indigenous peoples, 60
Inter-American Conference on Private judicial system, x–xi, 29–30,
International Law, 43 65, 178
Inter-American Institute for legal system, 17–18, 25, 29–30, 48,
International Legal Studies, 11, 13 84, 85, 139, 175; Amparo, xi,
International American Conference of 45; Eijidos system, 61, 70; labor
1888, 10 law, 60, 70; Otero formula, 41
International Bar Association, 22, 26 political institutions, 65–6, 141
International Centre for the Settlement Minority Populations, 43–4
of Investment Disputes (ICSID), Mississippi, 97, 102
81, 90, 110 Missouri vs. Holland (1920), 14
Convention for the Settlement of Mobility, Transnational, 20–1
Investment Disputes, 81 Model Insolvency Law, 21–2
International Court of Justice, 101 Mondev International vs. United States
International Law (2002), 100–1, 103, 105, 108
private, 1, 16, 47–9, 90–1, 158 Montesquieu, Charles de Secondat,
public, 1, 57, 90–1, 93, 94–5, 104, Baron de, 67
154 Most Favored Nation Status, 138–9
Index ● 209
Neer and Neer vs. Mexico (1926), 96, Root, Elihu, 94, 96
101, 106–7, 108, 112
Neo-Institutionalism, 57, 74 Salinas, Carlos, xii
New York Convention on the Scott, James Brown, 10
Recognition and Enforcement of S. D. Myers vs. Canada (2002), 91, 109
Foreign Arbitral Awards, 42–3 September 11th Attacks, x, 130
North America Free Trade Agreement, Spain, 163
ix, x, 1–2, 13, 14–15, 16–18, 19, Subsidiarity, 5, 125–6, 127–8, 129,
24, 27–9, 44–5, 46–7, 49–50, 57, 135–7, 140–4, 158–9
59, 66, 68, 79–86, 89–112, 125–6, Sugarcane Decree of 1991, 105–6
128–31, 133–44, 151, 166–8, Swiss Air, 83–4
175–7, 180
Article 1105 (1), 90–6, 97, Tax Law, 3, 5, 125–44, 159
100–12 European, 125–6, 127–9, 132, 133,
Chapter 11, 80–2, 83, 84, 90–1, 134, 159
93–4, 95, 96–7, 98, 99–107, North American, 125–6, 128–32,
108–12, 138 133–44
dispute resolution, 4–5, 16–18, Technology, xi, 8, 21, 141, 168
28–9, 46, 79–86, 89–94, Texas, 92
96–107, 131, 133–5 Tort Law, 48, 92
Security and Prosperity Partnership, Transnational Insolvency Project, 22
50, 68
Working Group on Trade and UNDROIT (International Institute for
Competition, 140 the Unification of Private Law), 25,
North American Consortium on Legal 26, 43
Education, 50 United Nations Commission on
International Trade Law
Organization for African Unity, 26 (UNCITRAL), 21–2, 81, 90, 110
Organization of American States, 12, Convention on the Recognition and
26, 43, 58 Enforcement of Foreign Arbitral
Awards, 81
Pan American Union, 10 United Nations Convention on
Parliamentary Government, 64–5, 73 Contracts for the International Sale
Partido Acción Nacional, 66 of Goods, 42–3
Partido Revolucianaro Institucional, 66 United States Environmental Protection
Personal Information Protection and Agency, 92, 93
Electronic Documents Act United States Federal Highway
(PIPEDA), 130 Administration, 102
Peso Devaluation Crisis of 1994, x United States Food and Drug
Pope and Talbot vs. Canada (2002), 91, Administration, 92, 97–9
100, 138 United States, ix, x–xi, 1, 2, 7, 11, 25–6,
Portugal, 163 29, 43, 57, 58, 74, 83, 89, 97, 110,
Presidential System, 65–8 125, 129, 130, 133, 142, 176–7,
180
Quebec, 25, 48, 50, 59, 97 Constitutional Tradition, 4, 62–3,
legal system, 13, 17, 47, 48, 71–2
50, 179 federal system, 13–14, 45–6, 71–3
210 ● Index
United States—continued Vermont, 92

history, 62–3, 71 Virginia, 102
judicial system, 45–6, 92–3
Waste Management, Inc. vs. Mexico
legal system, x, 84, 85 (2001), 103–4, 105, 108–9
political institutions, 62, 66–8, 85, World Bank, 27, 165
141 World Trade Organization, 24, 26, 80,
United States-Mexico General Claims 81
Commission, 96 Wyeth vs. Levine (2009), 92

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Toward a North American Legal

Edited by James T. McHugh

All rights reserved.

First published in 2012 by

Palgrave Macmillan is the global academic imprint of the above

Palgrave® and Macmillan® are registered trademarks in the United

ISBN 978-1-349-44397-0 ISBN 978-1-137-26950-8 (eBook)

Toward a North American legal system / edited by James T. McHugh.

A catalogue record of the book is available from the British Library.

Design by Integra Software Services

First edition: November 2012

List of Tables vii

Preface: Contemplating a Continental Legal Foundation ix

8 Conclusion: The NAFTA Region—a View from the Current

7.1 Combines the free movements/free establishment (vertical

market has enlarged, but there is no governance. Without institutions or

Salinas, who had been my classmate in graduate school at Harvard. It was

J. T. McHugh (ed.), Toward a North American Legal System

Therefore, the success of the NAFTA and the ongoing development of

continental level. He identifies significant reasons that scholars, practition-

success. Nonetheless, he stresses that a relatively neglected consideration of

states in aligning their respective domestic practices with international stan-

Assessing the Prospects of North

J. T. McHugh (ed.), Toward a North American Legal System

. . . the harmonization process . . . is often thought of as an evolutionary pro-

would thus exist not as an evolutionary process, but as an equilibrium amongst

Loukas Mistrelis, like Glenn, distinguishes between the types of harmoniza-

Prior Harmonization Efforts

Impediments to Creating a North American Law

With an understanding of the historical underpinnings of harmonization

Civil and Common Law Traditions

In addition, the OAS Secretariat often undertakes comparative law studies

Encouragements of a North American Law

The North American Free Trade Agreement

NAFTA Dispute Resolution

NAFTA’s Failure to Encourage Greater Legal Harmonization

The European Union experience allows us to better understand the problems

According to John Fitzpatrick, the objective of a comparison between the

Transnational Legal Mobility

aggravated existing tendencies of stratification, concentration, diversification,

Areas of Potential Harmonization

receive increased attention and acceptability globally. For a very detailed

Intellectual Property and Patent

Edgardo Buscaglia espouses the success of NAFTA’s IP protection under

Forum Selection/Choice of Law

further extending the zones of conflict-free party choice of law.”119 He fur-

doing so requires a deep understanding of the nuances of the political debate

model rules, standard contracts, or draft conventions.”134 Finally, several other

North American Institutions

North American Trade Tribunal (Appellate Tribunal)

North American Charter of Fundamental Rights

North American Bankruptcy Agreement

or predecessor of the present Inter-American Juridical Committee. In 1928, the

126. Id. at 372.

154. Id. at 373.

How to Think About Law in North

J. T. McHugh (ed.), Toward a North American Legal System

about law in North America in terms of a legal system, or even in terms of

Why We Should Not Think of a North American Legal System

The Concept of a Legal System

So it is difficult to think about a North American legal system because we

A North American Legal System and Existing Institutions in

North American institutions are thus varied, and live in a context of