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Quiet Constitutionalism in Canada: The International Political Economy of DomesticInstitutional ChangeAuthor(s): Stephen McBrideSource: Canadian Journal of Political Science / Revue canadienne de science politique, Vol. 36,No. 2 (Jun., 2003), pp. 251-273Published by: Canadian Political Science Association and the Société québécoise de science politiqueStable URL: http://www.jstor.org/stable/3233246 .

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Quiet Constitutionalism in Canada: The International Political Economy of Domestic Institutional Change

STEPHEN MCBRIDE Simon Fraser University

Constitutional scholars have paid little attention to the impact of globalization and the changing international political economy on Canada's constitutional arrangements. In particular the constitutional ramifications of international economic agreements, such as their impact on different aspects of sovereignty and the implications this has for democratic governance, have been insufficiently explored.

Canada's constitution, of course, has long been contested. For periods in the 1970s, 1980s and early 1990s the issue dominated Canadian politics. With few exceptions, the Canadian constitutional debate has been inward- looking and has not taken into account the potential impact of globalization or internationalization on Canada's system of government.' Most Canadian constitutional debates have focused on issues of reconciliation of national, linguistic and regional cleavages, or on working out the implications of the individual, and some collective rights accorded under the

Acknowledgments: Earlier versions of this article were presented in the departmental seminar series at the Department of Political Science, Simon Fraser University; at a one-day symposium on Globalism, Capitalism and Democracy, at the Institute for European Studies, University of British Columbia, March 2001; and at the annual con- ference of the British Association of Canadian Studies, York, April 2001. Participants in those events made a number of helpful comments. I specifically thank Greg Clarke, Dan Cohn, Linda Elmose, Andy Hira, David Laycock and Russell Williams for providing comments on a draft. Similarly, the comments of the JOURNAL'S reviewers were very useful in making revisions. All the usual provisos about agreement, disagreement and final responsibility apply. The research assistance of Libardo Amaya and funding from the Social Science and Humanities Research Council of Canada through the MCRI grant on Neo-liberalism and its Challengers is gratefully acknowledged.

Stephen McBride, Department of Political Science, Simon Fraser University, Burnaby, British Columbia V5A 1S6; [email protected]

Canadian Journal of Political Science / Revue canadienne de science politique 36:2 (June/juin 2003) 251-273

O 2003 Canadian Pohlitical Science Association (1'Association canadienne de science politique) and/et la Societe quebecoise de science politique



252 STEPHEN McBRIDE

Canadian Charter of Rights and Freedoms.2 By many accounts, the Meech Lake Accord, and the Charlottetown and Quebec referendum events of the 1990s led to "constitutional fatigue" and the end of the period of constitutional self-obsession.

Classically, the word "constitution" is used in at least two senses. First, it is a descriptor of the entire system of government: the rules, formal and informal, legal and nonlegal, which establish political institutions and condition the way they operate. For some, this should include values. Alan Cairns contends that analysis of constitutional rules and procedures "needs to be supplemented by a searching consideration of the constitutional culture within which the rules operate" (1995: 143). Writing of the informal or unwritten constitution, R. MacGregor Dawson commented that "the unwritten constitution is every whit as important as the British North Amer- ica Act" (1970: 60). Much of the broadly defined constitution was derived from British constitutional principles and practices that were, and still

largely are characterized by "flexibility and adaptability...and...evolution- ary change" (Foley, 1999: 3).

Second, however, the term is often reserved for a subset of this broad system of rules which has been codified, which enjoys special legal status and which can be changed only by specified and, typically, non-ordinary means (Wheare, 1966: 1-3). Canadian constitutional discourse has been focused, through consideration of amendment formulas, and proposed changes to the Constitution Act, on the narrow definition of constitution-that part which is codified and is regarded as having special legal sanctity.3

The sense of living in a post- or nonconstitutional era is fueled by an unduly restrictive conception of what is constitutional. Uncodified, less formal aspects of the constitution have tended to be ignored. With few exceptions, measures that are untraditional in constitutional terms have not been factored into constitutional discussions, even if, like trade agreements, they may have constitutional effect (there are notable exceptions; see Clarkson, 1993; Gill, 1995: 412; Grinspun and Kreklewich, 1994: 33; Schneiderman, 2000). As a result, significant changes to the constitution have occurred, largely without comment.

One domestic example of this is the claim that federal-provincial relations are undergoing profound change through nonconstitutional means, the theme of Harvey Lazar (1998). This rests on the assumption that: "Canadian federalism has the capacity to adapt to changing needs and evolving circumstances regardless of the difficulty in implementing formal constitutional amendments" (Lazar, 1998: 3-4). By confining constitutional change to formal amendments to the codified constitution, however, an excessively broad scope is left for the concept of "non-constitutional means." In Lazar's otherwise excellent collection on the state of the federation, this seems to encompass a broad range of measures:



Abstract. The idea that Canada is experiencing a "post-constitutional" era is misleading because it is based only on lack of changes to the formal codified constitution. Through an examination of international economic agreements, considered as untraditional mechanisms having a constitutional effect, a case is made that Canada's constitution has undergone significant, but little noticed, change over the last decade. Using Stephen Krasner's typology of sovereignty, it is shown that several aspects of Canada's sovereignty have been diminished. The effect is that the balance between liberalism and democracy in Canada's liberal democratic polity has been altered, to the detriment of the democratic component.

Resume. L'id~e que le Canada est entr6 dans une 6poque << post-constitutionnelle >> est erron6e car elle repose uniquement sur l'absence de changements formels de la constitution 6crite. Par l'analyse de certains accords 6conomiques internationaux, consid6r6s comme des instruments constitutionnels non-traditionnels, cet article permet d'avancer la these que la constitution du Canada a subi des changements importants, bien que peu remarqu6s, au cours de la derniere d6cennie. Il y est d6montr6, en utilisant la typologie de Stephen Kras- ner, que certains aspects de la souverainet6 du Canada ont 6t6 r6duits. Cons6quemment, I'6quilibre entre le lib6ralisme et la d6mocratie dans la d6mocratie lib6rale canadienne a 6t6 modifi6 aux d6pens de l'l61ment d6mocratique.

intensified federal-provincial collaboration on particular policy files (1998: 21), broad, long-term shifts in the nature of federal-provincial relations with relatively centralized federalism persisting in some periods, and more decentralized arrangements in other periods (1998: 20), and formal agreements like the Agreement on Internal Trade (AIT). The latter is described as "a key avenue for tangible reform of the federation by 'nonconstitutional means"' (Knox, 1998: 138).

Without belabouring the point, it seems clear that some of these measures would reasonably fall under the definition of "constitution" in its broader sense. Certainly, the major work on the Agreement on Inter- nal Trade-which contains a clause denying that anything in the agreement is to have constitutional effect (Doern and MacDonald, 1999: 11)- concluded that, notwithstanding such language, it, like the international free trade deals that are the subject of this article, constitutes a pillar of the Canadian constitutional order (1999: 152). In the case of the AIT this is partly because the federal government's Trade and Commerce powers are enhanced by the agreement "because it is the discriminatory power of provincial governments that have been most reined in" (1999: 162). However, more fundamentally, the AIT and the international economic agreements are constitutional in the broader sense because "they have a solidity of presence in the minds and strategies of governmental policy makers. All policy must now be designed with an eye to whether all of the rules of the game are being adhered to, and these rules now include those of the international-trade and internal-trade quasi-constitutional realms" (1999: 152).

Thus negotiation and ratification of such agreements are part of a process that can be termed "quiet constitutionalism" which produces constitutional change without overtly engaging in constitutional reform. The impact of quiet constitutionalism is ongoing and far-reaching. Fundamen-



254 STEPHEN MCBRIDE

tal changes have occurred affecting Canadian sovereignty and the degree to which democracy matters.

International economic agreements, such as North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), moved from shallow integration between states, typical of earlier agreements, to deep integration. In earlier agreements, certain aspects of inter- state relations were covered, such as the duties that might be levied on goods crossing a border, but beyond that, national sovereignty was little affected. The new generation of agreements covers services, investment and intellec- tual property rights, and has expanded the definition of trade, in some cases, to cover anything that might be "trade-related." Their reach into the internal politics and policies of signatories has vastly expanded (Wolfe, 1996).

Amendment or withdrawal from international economic agreements may, on paper, be easier than passing amendments to the codified portions of Canada's formal constitution. However, in practice, changes involve the agreement of actors external to the Canadian political system; and withdrawal, though legally achievable by decision internal to Canada, may be prohibitively expensive once the integration promoted by these agreements has had time to develop. International agreements like NAFTA and the WTO are binding as long as they are in effect. And if their provisions do have a constitutional impact, and if it be conceded that, once entered into, the practicalities of withdrawal are far more difficult and hazardous than the legal exit route suggests, then they can be considered part of the constitution.

Constitutionalism is intimately linked to both sovereignty and democracy. Constitutions, whether broadly or narrowly defined, pertain to a particular society; a given people occupying, normally, a certain territory and exercising sovereignty over it. The independence implied by sovereignty serves to define the constitution's sphere of application. And if the constitution is a democratic one, then sovereignty also defines the scope of democratic decision making.4 However, sovereignty is used in a number of different senses (Krasner, 1999: 9-10; Philpott, 2001), which draw differently upon the concepts of authority, the recognized right of a state to take certain actions and control, and its actual capacity or ability to engage in them. Krasner offers the following usages:

domestic sovereignty, referring to the organization of public authority within a state and to the level of effective control exercised by those hold- ing authority; interdependence sovereignty, referring to the ability of public authorities to control transborder movements; international legal sovereignty, referring to the mutual recognition of states or other entities; and Westphalian sovereignty, referring to the exclusion of external actors from domestic authority configurations. (1999: 9)

Globalization, either in the guise of the increased structural power of private actors such as multinational corporations (Kozul-Wright, 1995: 164-65;



International Political Economy of Domestic Institutional Change 255

Strange, 1996: 4), or through the provisions of international economic agreements, touches on all these forms of sovereignty generally, with a diminish- ing effect.

Only international legal sovereignty remains intact. Indeed, mainte- nance of international legal sovereignty is necessary for states to engi- neer the diminution of the other forms of sovereignty. As Krasner has noted with respect to Westphalian sovereignty, it "can be violated through both intervention and invitation" (1999: 8). It is clear that the state is complicit in the erosion of the other forms of Canadian sovereignty. The fact that Canada can withdraw with minimal formal difficulty from agreements like NAFTA and the WTO signifies that its international legal sovereignty remains intact. To the extent that the agreements alter the configuration of domestic authority, or restrict the scope for exercising such authority, they represent a negotiated, by-invitation infringement of other forms of sovereignty.5 Whilst there may be no necessary correlation between these forms of sovereignty (Krasner, 1999: 9), in the Canadian case changes are found together. The state has seen its future capacity to act circumscribed by neoliberal rules embedded in the international agreements it has signed.

In a democracy, other things being equal, reducing the state's capacity through diminished sovereignty reduces the scope within with democratic governance can be practised. To the extent that exercise of democratic judgment is displaced by adherence to (externally adjudicated) liberal rules, this situation recalls C. B. Macpherson's argument (1965 and 1977) that the two elements of a liberal democratic system, liberalism and democracy, are separable. Macpherson noted that liberal democracy is a construct of the two distinct principles. Liberalism, inextricably linked to capitalist market economies and thus to an unequal distribution of property, came first historically; democratic elements were subse- quently grafted onto liberal society to form liberal democracy. The two elements were always in some tension. For example, the possibility always existed, though has been rarely exercised, that the people could use the power of democracy to establish a more egalitarian, non-market, non-liberal society. For the most part, however, liberal democracies have confined popular sentiment to more limited goals. These have maintained capitalist economic relations even whilst, through regulation, public ownership of some industries, or the creation of the welfare state, moderating some of their effects.

Through the process of quiet constitutional change associated with globalization, a re-ordering of the relationship between the liberal and democratic components of the political system is evident at the beginning of the twenty-first century. That is, in the name of creating a liberalized global economy, the democratic elements of liberal democratic systems are being reduced and confined to a much narrower range of human activ-



256 STEPHEN MCBRIDE

ity. The possibility, even, of moderating market outcomes is reduced. What remains is a purer liberalism, stripped of some of the democratic elements that had been grafted onto it over the previous century and a half. This has been achieved at least in part through the diminution of state capacity or scope for democratic policy making, associated with the observance of neoliberal rules embedded in international agreements.6 In disputes over the scope of the rules, few cases have sustained the ability of nation-states to regulate health, environmental, labour or other issues that might stand in the way of economic liberalization (the main exception to date is the failed Canadian action against French regulations pro- hibiting the use of asbestos; see WTO, 2001). For example, analysis of WTO cases related to labour standards and health issues showed that private interests have prevailed over the public interest in the great majority of cases. That is, free traders generally prevailed over those who wished to erect social regulations where these were judged to infringe on trade (Drache and Guan et al., 2000: 39-45, 71-72). Mostly, therefore, although countries may enter disputes about specific cases according to their per- ceived interests, and "win" or "lose" their case, the pattern of the outcomes reinforces the liberal rules that constrain state action. If these are democratic states, the scope for future exercise of democratic decision making is also constrained.

Much of Canada's constitutional discourse has assumed that Canada has generally democratic arrangements and that it is a sovereign state. Most Canadians have had little trouble regarding the overall political system as a democratic one. However, the process of amending the constitution did focus attention on the democratic limitations of representative government when expressed through executive federalism. Discontent with the initial exclusion of women's and Aboriginal rights from the Charter and, later, with the entire Meech Lake process of constitutional reform, established what Peter Russell calls the "only constitutional ideal on which there is popular consensus in Canada" (1993: 5). This is the notion that future constitutional change must be arrived at democrati- cally-a doctrine that seemed to be confirmed by the Charlottetown process which included public consultations and concluded in a country- wide referendum.

However, such a democratic imperative in constitution making is exaggerated when viewed from the perspective of "quiet constitutionalism." More precisely, it is entirely confined to proposals to change the codified elements of the constitution. Very consequential (albeit quiet) constitutional change has occurred in the non-codified parts of the Cana- dian constitution, achieved by elites engaged in the international equiva- lent of executive federalism-trade negotiations that reach deeply into the domestic area.




The Constitutional Impact of International Economic Agreements A quiet constitutional change has been accomplished through the mechanism of international economic agreements that Canada has signed. The impact of the agreements is to reduce aspects of Canadian sovereignty and this, given the democratic poverty of supranational institutions, reduces the scope for the exercise of democracy in Canada. Instead of providing opportunities for democratic choice, quiet constitutional change imposes liberal rules of behaviour on governments and other actors and denies them the ability to make choices that lie outside that value framework. This argument is illustrated below using Stephen Krasner's categories of different forms of sovereignty.

Domestic Sovereignty: The Organization of Public Authority within the State

The organization of public authority has been affected by quiet constitutionalism in four ways. Trends to executive dominance have been reinforced; the pecking order of bureaucratic agencies has been altered; federal authorities have acquired a supervisory role in areas of provincial jurisdiction; and, although in some areas the courts have gained jurisdiction, this is more than offset by lost jurisdiction in many other areas.

Executive Dominance

The inclusion in the preamble to British North America Act, 1867 (since 1982, the Constitution Act) of the statement that Canada was to have a system of government "similar in principle" to that of Britain symbolized the incorporation of a host of practices and constitutional doctrines which mark the Canadian polity. Not least is the parliamentary system which, in its British iteration, included the doctrine of parliamentary supremacy. Simply put, this implied that there was no higher political authority than Parliament. Hence, within the limits of the physically possible, Parliament could do anything within the territory over which it was sovereign. In Canada, of course, the impact of this doctrine was modified by federalism. Given divided jurisdictions, the courts had to decide in particular cases to which legislative body, federal or provincial, parliamentary supremacy belonged. As a result, Canadian courts assumed a more prominent role in the political system than in Britain.

In practice, the Canadian parliamentary system is characterized by executive dominance and there are signs this has increased over time (Savoie, 1999; Smith, 1995: chapter 4). Executive dominance can be attributed to the constitutional legacy of the British parliamentary system (Wade and Bradley, 1965: chapters 2-3), the conventions under which the institutional system actually operates (Heard, 1991), and party discipline



258 STEPHEN MCBRIDE

which normally ensures that cabinet dominates parliament. The fact that many issues are subject to federal-provincial negotiation, expressed historically in the terms "co-operative" and "executive" federalism, and more recently in the concept of a social union, further enhanced tendencies to executive dominance. Once intricate agreements are worked out at intergovernmental meetings, they are very difficult for legislatures to alter. Not only were lines of accountability blurred under such a system, the possibility of legislative scrutiny of the executive was also diminished.7 More- over, many issues formerly dealt with within the Canadian political system are increasingly determined through international economic negotiations; executive federalism has come to be writ large, with all the attendant problems of control and accountability.8

State Agencies The requirements of international economic integration have led to a different configuration of power and influence among state agencies and government departments. Responsibility for international trade was transferred to the Department of Foreign Affairs and International Trade (DFAIT) in 1982 (Keenes, 1992). As a result, the department occupied a lead role during the negotiation of the Canada-United States Free Trade Agreement (FTA) and NAFTA, and gained power because of growing international influences on the content of public policy (Doern and Kirton, 1996). The importance of these trade issues reinforced the traditionally close relationship the department has with the prime minister. The prime minister stands at the centre of the power structure, is a participant in many of the more important international meetings and negotiations, and main- tains a watching brief over others. DFAIT's ability to maintain a key role in the preparations for such events enhances its position.9 To some extent this is offset by its need to access the expertise, legislative mandate and resources of other (functional) departments-a requirement that implies a degree of power sharing. Overall, however, DFAIT, together with other key economic ministries such as Finance, have seen their power grow.

Federalism

The Constitution Act, 1867, reflecting the centralist views of its drafters and, notably, John A. Macdonald, together with the need of the economic elite of the day for a developmental state, attempted to create a strong cen- tral government. Except for periods of wartime, however, the trend in the development of Canadian federalism has been mostly in a decentralist direction. Yet in the name of international trade liberalization and striking down inter-provincial barriers to trade, there have been a number of cen- tralizing developments. The Macdonald Report (Royal Commission on the Economic Union and Development Prospects for Canada Report, 1985)




called for an amendment to extend the provisions of section 121 of the Constitution Act (establishing free trade in goods) to include services, and for a Code of Economic Conduct to help eliminate non-tariff barriers to trade in goods and services. Picking up this theme, the Conservative federal government argued, in its 1991 rationale for constitutional change, that the external challenge of globalization and technological change required "greater adaptability and more effective approaches to how federal and provincial governments interact with each other and with the private sector" (Canada, 1991: 1). In the government's view, one of the key ingredients of future competitiveness lay in strengthening the free-market basis of the economic union (Canada, 1991: 9). Such sentiments led eventually to the negotiated AIT.l0

The operation of the federal system has also been affected by the terms of the international agreements which Canada has joined. NAFTA Article 105 provides that each party to the agreement "shall ensure that all necessary measures are taken in order to give effect to provisions...including their observance...by state and provincial governments." The equiva- lent language in the General Agreement on Tariffs and Trade (GATT) calls for "all reasonable measures" to be taken. Since 1994, the "reasonable measures" clause has been formally understood to mean that GATT obligations apply to subnational governments. Should a government in a federal state be unable to obtain compliance by a subnational government, it must either compensate other parties or face the imposition of retaliatory measures by them (Trone, 2001: 15-16). An analysis of the implications of NAFTA chapter 11, which deals with investment protection and, to some degree intrudes on provincial regulatory capacity, concluded that the provinces were bound by chapter 11 under the federal Trade and Com- merce power (Constitution Act, s.91:2). Moreover, it concluded it would be constitutional for federal authorities to enact legislation compelling a province to pay any compensation due as a result of a provincial law in violation of chapter 11 provisions (Luz, 2001).

Here, the federal government is cast in a supervisory role vis a vis the provinces. It is required to obtain the compliance of subnational governments and, if the above argument is valid, should it fail to do so it has the

ability to extract the costs of compensation from an offending province. Thus the federal government's role under international agreements has been described as acting as "the domestic enforcer of an international system that reduces the scope and effectiveness of provincial policy instruments" (Robinson, 1995: 251). Such a role implies a partial re-centraliza- tion of power within the federation.

It is also significant that provinces were not included at the free-trade negotiating tables (Doern and Tomlin, 1991: 126-51) though there have been consultations between them and the federal government (Brown, 1991). Following the Tokyo round of GATT negotiations, greater efforts



260 STEPHEN MCBRIDE

were made to involve the provinces as international trade agreements began to bear on topics under provincial jurisdiction. Since there was virtually no consultation with the provinces prior to the Tokyo round, this development represents an opportunity for provincial influence in an area from which they were formerly excluded. However, provincial involvement remains incommensurate with the impact of the agreements, whose greater intrusiveness into services and public sector programmes affects the core activities of provincial states. The provinces are increasingly bound by outcomes into which they had little input and, in some ways, are placed by the agreements under the supervision of federal authorities.

The legal ability of the federal government to "speak for" and commit the provinces in this way is open to debate. In the Labour Conventions Case of 1937, the Judicial Committee of the Privy Council (JCPC) "refused to accept the [federal] treaty implementation power as a constitutional support for interfering in provincial powers" (Russell and Knopff et al., 1989: 104-10). However, no province has challenged federal authority over the implementation of the FTA, NAFTA or WTO.

Part of the explanation for this may be that most provincial governments endorse the liberalizing effects of the agreements. For a time, though, some provinces, especially those under New Democratic party governments, were ambivalent about, or even opposed to, the globalization agenda pursued by the federal government. Why did these governments not then challenge federal authority? One reason for provincial silence, of course, is the structural power of capital in a global economy, for all provinces wish to appear to be hospitable sites for investment. Challeng- ing the federal government's authority to commit the provinces might trig- ger investor hostility, with significant adverse consequences for the offending province's economy. Certainly, it seems that the spectre both of action under the Free Trade Agreement and capital flight induced by loss of investor confidence contributed to the Ontario New Democratic party government's decision to withdraw its plan for public automobile insurance in 1991 (Clairborne, 1991; World Insurance Report, 1991).

Another reason lies in the complicated constitutional issues surrounding federal power to negotiate and implement treaties that intrude into areas of provincial jurisdiction. Apprehension that the Supreme Court might modify the Labour Conventions precedent by conferring increased jurisdiction on the federal government may help explain some provinces' failure to challenge the potentially significant enhancement of federal authority through international economic agreements (Richards, 1991).

The Supreme Court's decisions regarding "Peace, Order and good Government" and the Trade and Commerce powers in Crown Zellerbach 1988, General Motors 1989 and CN Transportation 1983 gave some basis for the view that the Supreme Court might significantly modify the out- come of the Labour Conventions Case should the opportunity arise




(Howse, 1990; Trebilcock, 2001; Vegh, 1996). Trade agreements are now based on deep integration, are no longer confined to goods and are inextricably linked to investment. In these circumstances, the reach of the federal Trade and Commerce power might be interpreted as a much more substantial foundation for federal jurisdiction than formerly."

Reflecting on the willingness of the Canadian government to enter into obligations which have an impact on provincial jurisdiction, Donald S. Macdonald (1998) noted that this was indeed a departure from past practice. Since the Labour Conventions Case, federal governments had been reluctant to conclude international agreements that would require enforcement within provincial areas of jurisdiction. He surmised that, in the case of NAFTA, the government had been prepared to take that risk because investment and other provisions having impact on the provinces were included within the trade agreement. Given the interdependence of investment and trade, the calculation may have been that investment measures could withstand a court challenge. This argument raises the prospect of the Trade and Commerce power becoming a de facto residual clause in the Canadian constitution.

Courts

By covering matters such as government procurement, traditionally regarded by Canadian courts as "substantially immune from judicial review" (Lemieux and Stuhec, 1999: 147), NAFTA expanded the role of the Federal Court of Canada in particular. By creating a procurement review mechanism, pursuant to FTA/NAFTA provisions, a need for a judicial review was created. This fell to the Federal Court. As well, to the extent that domestic law refers to NAFTA, or is an expression of the NAFTA agreement's provisions, the Federal Court's role will be enhanced (Lemieux and Stuhec, 1999: 154).

However, as outlined in a later section, this is not the end of the story for Canadian courts. Extra-territorial adjudication procedures under NAFTA and the WTO increasingly make far-reaching decisions. When matters covered by international economic agreements are beyond the reach of Canadian courts, they may be said to have lost jurisdiction.

Domestic Sovereignty: The Level of Effective Control Exercised by Authorities

Effective control by domestic authorities is diminished by the provisions of international economic agreements in a variety of areas. It must be emphasized that this does not mean that national capacity has been elimi- nated or that the nation-state is irrelevant, as some of the more extreme versions of globalization theory suggest. Indeed, empirical studies suggest



262 STEPHEN MCBRIDE

there is considerable autonomy at the nation-state level (Hoberg, 2000; McBride and Williams, 2001). However, the fact remains that the international economic agreements "condition" a large part of what previously was considered "domestic" policy and undermine the control formerly exercised by domestic authorities. Examples, drawn from both the WTO agreements and NAFTA, indicate that limits have been imposed on states' ability to legislate without hindrance on health, safety and environment matters, on the capacity to structure a desired mix of public and private, or domestic and foreign, provision in the service sector, and on the ability to attach performance requirements to investment.

The WTO Agreement on Technical Barriers to Trade (for a summary, see Das, 1998: chapter 12; texts of WTO agreements can be found in WTO, 1999a) circumscribes government regulation of products for security, health or environmental reasons. The legitimacy of government regulation in these areas is recognized, provided the regulations are not more trade-restrictive than necessary, are nondiscriminatory and respect the national-treatment principle. These provisions open the door to a variety of challenges to national policies; the requirement that regulations should not be more trade restrictive than necessary, privileges trade above other legit- imate policy goals. For example, the least trade-restrictive health or environmental regulations may not be the best regulations, as viewed from health or environmental perspectives.

Trade agreements used to focus largely on trade in goods. However, under the WTO, the General Agreement on Trade in Services (GATS) in particular, commits its signatories to a "built-in" agenda that promotes progressive liberalization of trade in services (Das, 1998: 110). The GATS process is tilted towards progressive "opting-in": "In committing governments to repeated efforts to enlarge opportunities for international trade in services, it [Article XIX of GATS]...is a guarantee that the present GATS package is only the first fruit of a continuing enterprise, to be undertaken jointly by all WTO members, to raise the level of their services commitment towards one another" (WTO Secretariat, 1999a) The WTO Secretariat is frank about the GATS's capacity to intrude into national decision making:

The reach of the GATS rules extends to all forms of international trade in services. This means that the GATS agreement represents a major new fac- tor for a large sector of world economic activity. It also means, because such a large share of trade in services takes place inside national economies, that its requirements will from the beginning necessarily influence national domestic laws and regulations in a way that has been true of the GATT only in recent years (WTO Secretariat, 1999b; emphasis in original).

In a related document, the secretariat cited as advantages the ability of bindings, once undertaken, to "lock in a currently liberal regime or map out a future liberalization path" (WTO Secretariat, 1999b) while overcom- ing domestic resistance to change.




Moreover, since the WTO is a "single undertaking" it may' be antici- pated that pressures from other arenas, trade in goods, for example, may be used to reinforce the commitment to progressive liberalization made under services. There is an exclusion for public services "supplied in the exercise of governmental authority"-a term meaning "any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers" (WTO, 1999a: article 1.3[b] and [c], 287). As critics have been quick to note, few publicly provided services will qualify under this exclusion (Sinclair, 2001: 33).

NAFTA is based on the same principles. It explicitly covers services as well as goods, and investment as well as trade. And governments have entered reservations such that certain sectors are removed from the provisions of NAFTA. For Canada, these include "the following services to the extent that they are social services established or maintained for a public purpose: income security or insurance, social security or insurance, social welfare, public education, public training, health and child care" (CCH, 1994: annex II, 61-686).

Despite the apparent protection for public services under NAFTA there are some limitations, actual and potential, on these exemptions (Sanger, 1993: 189-92). First, NAFTA treats public services as commodi- ties. Those declared exempt from other NAFTA provisions are "non-con- forming," and thus anomalous from the natural state, which is presumed to be market competition and private enterprise."2 Second, NAFTA requires that publicly provided services be consistent with the commercially ori- ented rules in the services sector. For example, in cases where governments purchase services from private providers, provisions such as national treatment could certainly operate to deny governments the right to prefer national firms, even where strong cultural grounds might exist for the preference.

Other restrictions affect the state's capacity to engage in industrial policy. Many of the key instruments that might be used, such as performance requirements on foreign investment, the ability to discriminate in favour of domestic producers or to use Canadian energy resources to support domestic industry, are prohibited under the provisions of the treaties. Unexpectedly, as a result of the magazines case (for details see DFAIT, 1997), Canada is also prevented from applying some of the measures it has used to promote Canadian cultural industries (Shrybman, 1999: 37-44).

The WTO also prohibits a number of potentially useful industrial policy measures through its agreement on Trade Related Investment Mea- sures (TRIMS) (Das, 1998: chapter 16). Measures deemed inconsistent with GATT include so-called domestic content provisions (that an enterprise must use or buy a particular quantity or proportion of domestically sourced products in its operations). Linking quantities of domestically supplied products to export, or to the foreign-exchange earnings perform-



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ance of an enterprise are similarly outlawed. This removes one of several "performance requirements" that countries often used in the past. Others were unaffected, and so from the standpoint of international capital, TRIMS failed to produce the kind of investor-rights regime it was seeking. NAFTA and the defunct Multilateral Agreement on Investment are much closer to the prototype agreements favoured in the investment area (Shrybman, 1999: 15).

NAFTA chapter 11, especially, deals with investment and services and covers, subject to certain reservations, all forms of investment interests. The principle of most favourable treatment is to be applied to provinces and states (1102.3) and prohibits a wide range of performance requirements. These include requirements to export a certain proportion of goods or services produced, or achieve specified levels or balances of foreign exchange earnings, or target specific export markets. Domestic content or purchasing requirements are banned, as are provisions that would insist on transfers of technology.

The effect of such restrictions on performance requirements is to make it difficult for Canadian governments to channel the type of investment they might wish to encourage and to use for long-range national or regional industrial strategy (Stanford, 1993: 166-67). A possible conse- quence is that investors will focus on areas of "natural" comparative advantage which, in Canada's case, would be natural resources (for evi- dence on this point, see Ciccantell, 2001). In addition, NAFTA effectively "prevents governments from imposing these performance requirements on domestic investors" (Stanford, 1993: 160). In some cases this is achieved by the national treatment language in NAFTA; in others, domestic firms would be placed at a disadvantage in competing with foreign firms. Even enthusiastic proponents of trade and investment agreements (Grady and Macmillan, 1999: 93) are concerned by the possibility that foreign investors might be treated better than domestic investors. The possibility that investor rights provisions, also contained in NAFTA chapter 11, could undo carefully worked-out compromises between states has also begun to attract attention.

Both the NAFTA and WTO impose significant restrictions on the exercise of state capacity and, hence, on domestic sovereignty and upon the sphere within which democracy can apply. Within NAFTA, since with the exception of defence, Mexico and Canada have traditionally relied more on the state than the US, the impact is greater on those countries.

Interdependence Sovereignty

Interdependence sovereignty refers to states' ability to control trans-border movements. Trade liberalization, which includes the elimination of quanti- tative restrictions (import and export controls), has potentially far-reaching




consequences for economic and environmental policy, including industrial policy, and hits at the heart of this type of sovereignty. Historically, Canada placed conditions on the export of raw logs and unprocessed fish in order to stimulate domestic processing industries, value-added production and jobs. These products are "grandparented" under NAFTA (Annex 301.3), but are not thereby immune from challenge (see discussion of cases in Shrybman, 1999: chapter 6). Environmental considerations, such as the energy and transportation impacts of exporting other unprocessed raw materials, could militate states to introduce similar policy provisions. These would undoubtedly be subject to challenge.

In particular, the ability of Canadian governments to use energy resources as an instrument of national development is circumscribed by two NAFTA articles. Article 605 provides that any restrictions applied to energy exports do "not reduce the proportion of the total export shipments of the specific energy or basic petrochemical good made available to that other Party relative to the total supply of that good of the Party maintain- ing the restriction as compared to the proportion prevailing in the most recent 36-month period." Nor may the mix of products be affected by such a regulation. Similarly, a two-price system, where export prices are higher than those charged domestically, is prohibited.

Any policy initiative like the National Energy Program of the 1970s is thereby precluded. For the Americans, this locks in supplies of Canadian energy and thus provides security of supply. For Canadian neoliberals and business, the interventionist powers of the Canadian state are effectively restricted. For the government of the day it was deemed a "desirable loss of sovereignty" (Doern and Tomlin, 1991: 258). The result is to preclude the future exercise of political and democratic choice in an important area.

Westphalian Sovereignty

Westphalian sovereignty involves the ability to exclude external actors from the exercise of domestic authority. The trade agreements provide opportunities for external actors to participate in Canadian authoritative institutions and, in some cases, for external authorities to overrule domestic institutions. Four examples are: investor rights, loss of authority to international tribunals and panels, the growth of external scrutiny and accountability mechanisms, and opportunities afforded external actors to influence the domestic policy-making process.

Canada has never formally guaranteed "property rights" in its constitution. Efforts to include them in the Charter, and later in the 1992 Char- lottetown constitutional round, failed. However, a form of property rights has been conferred on foreign investors through NAFTA Article 1116, which permits investors to launch a claim directly without "their" government acting as an intermediary. Thus multinational corporations acquired



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rights which strengthened their hand vis ia vis states; "corporate citizens" became more privileged in relation to "natural" or human citizens. This provision was a breakthrough for US policy and established a precedent in international economic agreements by giving corporations, for certain purposes, equal status with states.

NAFTA Chapter 11 provides that an investor may initiate a suit against a member government alleging that it has breached its obligations, which are broadly defined and cover "virtually all types of ownership interests, either direct or indirect, actual or contingent" (Appleton, 1994: 80). Obligations include national treatment and most-favoured-nation status, together with a prohibition on nationalization or expropriation of an investment except on a number of identified grounds. Cases are heard by a tribunal which applies the rules of international rather than Canadian law governing commercial disputes. To qualify as an investor who may launch a suit it is not necessary that an individual or corporation actually have an investment; they could receive investor status merely by seeking to be an investor (Appleton, 1994: 81). Notably, it provides investors with enforcement rights under a treaty to which they are neither parties nor have obligations (Shrybman, 1999: 135-36).

Over these very broad issues, Canada has essentially ceded decision making to an international tribunal. As important issues have been transferred to the jurisdiction of international trade panels, the Canadian courts have been diminished. Under NAFTA, for example, a bi-national review panel displaced judicial review of most issues concerned with dumping and anti-dumping, at least for disputes between NAFTA members. And, in the investment chapter, foreign investors are given the option of pursuing disputes through domestic courts or arbitration panels. Whereas under the anti-dumping and countervailing subsidies provisions the panels apply domestic law, under the investment chapter they apply international law and are able to award damages and impose other sanctions (Lemieux and Stuhec, 1999: 146).

Disputes arising under the WTO are referred to dispute panels once attempts at consultation and mediation have failed to produce a mutually acceptable resolution. The scope of regulations under the WTO expanded dramatically as a result of the Uruguay Round of GATT, 1986-1994. The dispute resolution mechanisms were also strengthened to eliminate delays and the right of the guilty party to eventually veto decisions. Enforcement mechanisms include elimination of the regulation or legislation found to be in breach of WTO provisions, payment of compensation or, should the offending party fail to implement panel findings, sanctioned retaliation by the injured party. The WTO has already deemed Canadian magazine legislation, promoted as defence of Canadian culture, and the Auto Pact, to be contrary to WTO provisions (DFAIT, 1997; WTO, 2000).




Scrutiny and "Moral Suasion"

There are also new forms of scrutiny and accountability that undermine some aspects of Westphalian sovereignty. Domestic policy is continuously monitored by the international organizations to which the country belongs. Conducted in the name of "transparency," this exercises a strong "moral suasion" effect, not only for compliance with the letter, but also with the neoliberal spirit, of the agreements. The Uruguay Round established a Trade Policy Review Mechanism (TPRM) under which the trade policies of member nations are regularly reviewed to improve their adherence to WTO rules and commitments, to achieve greater transparency surrounding trade policy and practices and to facilitate collective evaluation of the impact of individual trade policies on the multilateral trading system (Qureshi, 1999: 314). The agreement contains provisions that state that the mechanism is not there to enforce specific obligations, and trade officials deny that TPRM is an enforcement mechanism (Qureshi, 1999: 318-22). Interestingly, these measures are depicted simply as improving public policy through transparency, providing information about each other's practices. However, it can be argued that the TPRM has "enforcement charac- teristics" because it is compulsory, and occurs within a normative framework against which national trade policies are judged, implicitly or explicitly. The effect is to condition state behaviour:

It inculcates at the earliest possible moment a "WTO" approved pattern of behaviour-both through the impregnation of the national policy framework by substantive WTO trade prescriptions, as well as through the provision of conditions, including institutional, necessary for the evolution of WTO approved trade policies. The "conditioning" stems particularly from the probing of policy, policy formulation and the objectives of policies. (Qureshi, 1999: 320)

Whether viewed as enforcement or transparency mechanisms, the TPRMs seem to have been effective. Increased use of anti-dumping measures, detecting use of subsidies, state aids and tax concessions in support of industrial and regional development policies, and drawing attention to the importance of domestic deregulation to ensure that the effects of trade reforms were not offset by domestic firms' strategies, have been credited to the TPRM process. Through its monitoring role, the trade policy review process has "not only contributed to the fulfilment of commitments in the multilateral trading system but has also contributed to the development of national policies" (Laird, 1999: 760). If so, there is a case for arguing that these extra-territorial monitoring mechanisms, that have become part of our institutional structure through international agreements, can be more effective in influencing policy than elected domestic institutions like parliament.

A number of transparency provisions in Chapter 18 of NAFTA also open up the policy process to the early intervention of NAFTA partners.



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Contact points must be established to facilitate communications and to provide information on matters covered by the agreement. All measures affecting the agreement are to be made public in a timely manner. Under Articles 1802 and 1803, to the maximum extent possible, each party shall provide notification of any measure affecting the agreement that it pro- poses to adopt, and provide other parties a reasonable opportunity to comment. Similarly, whether or not advance notification has been given, parties shall promptly provide information and respond to questions regarding any proposed or actual measure. Little research has been done on how these provisions operate. On paper, at least, they would seem to create structured and enforceable opportunities for policy influence by the other states belonging to NAFTA.

Entrenching Economic Liberal Values

The argument that the Canadian and other liberal democratic polities are being liberalized at the expense of their democratic elements has been illustrated by efforts to bind the state permanently to a particular liberal conception of the state's role.13 One dimension of this process is entrenching the values of economic liberalism in international agreements which have constitutional effect. Diminished state capacity and increased reliance on international rules and norms, liberal in nature, follow. Once ratified, these are difficult to alter. Appleton argues that:

The NAFTA represents the supremacy of a classical liberal conception of the state with its imposition of significant restraints upon the role of gov- emment. All international trade agreements entail some self-imposed limi- tation on government authority, for example governments regularly agree not to increase their tariff rates. However, the NAFTA appears to approach an extreme. It does this by the extensiveness of its obligations which attempt to lock-in one perspective of governmental role for all successive North American governments. (1994: 207)

Appleton's claim also seems applicable to other major trading agreements, such as the WTO. The extension of GATT into the WTO produced an intensification of the liberalization of world trade, its extension to new areas and a greater capacity for enforcement. Shallow or negative integration based on reciprocal reduction of border measures (GATT) has been transformed into "'deeper,' positive or 'behind the border' integration which can require analysis of almost any national policy likely to have spill over or external effects across borders."'4

In this way, the contents of international agreements, ostensibly deal- ing with trade, have become part of the constitutional system. The agreements function to constrain, limit, direct and "condition" decision making in areas far removed from trade as traditionally understood. Canada's state is no longer available for as wide a range of purposes as formerly. Neolib-




eral globalization, in the shape of involvement in the new generation of multilateral and bilateral trade and investment agreements, has modified significantly the doctrine of parliamentary supremacy and, through it, the potential reach of democratic governance. It is true that Parliament could pass legislation withdrawing from these agreements and exercise its international legal sovereignty in doing so. Short of that, however, its reach is circumscribed and constrained in ways that would hardly have been imag- ined even two decades earlier. This amounts to a constitutional change. Interestingly, and regrettably, the change in the capacity for action of government institutions, unlike other rounds of constitutional proposals, has largely escaped scholarly and public attention.

Notes

1 Three exceptions can be noted. First, the largely symbolic "patriation" of the constitution from the vestiges of British colonialism was achieved by the Constitution Act 1982. Second, one subtext in the Macdonald royal commission and in representations made by business organizations such as the Business Council on National Issues (later renamed the Canadian Council of Chief Executives), was that Canada's political institutions should be altered such that they served the needs of competitiveness in a global economy. Third, critics of the international economic agreements in which Canada par- ticipates have made the case that they have constitutional effects. For example, see Clarkson, 1993; Schneiderman, 1996; O'Brien, 1995.

2 Where international influences are recognized, it is with reference to the dimensions of Canada's internal constitutional discourse-ethnic nationalism, multiculturalism and so on. See Cairns, 1995: 147-48.

3 There are obvious exceptions. Cairns, for example, has stressed the very broad context within which the operation of the narrow constitutional framework should be understood.

4 As Claus Offe (1996: ix) notes: "a strong state is not desirable in and of itself, as it can become, unless constrained by effective rule of law and democratic mechanisms, a threat to citizens and their rights. But neither is a 'weak' state a desirable alternative, to the extent that political strength (of governments, parties, or other collective actors) is a crucial device for the protection of collective interests and for reformist strategies of social change." This linkage between state, sovereignty, constitutionalism and

democracy may be said to have emerged from the French Revolution; see Hobsbawm, 2000: 22-23.

5 Krasner notes that invitational infringements of Westphalian sovereignty have received less attention than infringements through intervention. Clearly, domestic capacity can be reduced as a result of such invitations. Reasons advanced for such voluntary reduc- tions of capacity by "rulers" include: "tying the hands of their successors, securing external financial resources, and strengthening domestic support for values that they, themselves embrace" (1999: 22).

6 It might be argued that rather than being lost to the nation-state, sovereignty is being partially disconnected from territory. By pooling its sovereignty with others, decision

making is transferred to extra-territorial institutions through which the state can influence or perhaps control issues, such as pollution, that may not be manageable territori-

ally. See the discussion in Clark, 1999: 83-84. Whether the transfer of sovereignty increases or constrains the state's capacity, and hence the reach of democracy, is an

empirical question. As Clarkson (2000: 159) notes, the answer depends upon whether



270 STEPHEN MCBRIDE

"the rules reflect the interests of the most powerful states that had taken part in the

negotiations" and upon the resolution of specific points that occur under those rules. 7 Even the concept of collective responsibility through cabinet government is now ques-

tioned. It may be that the cabinet is now almost as redundant as parliament in terms of real decision-making power which resides overwhelmingly with the prime minister. Savoie, playing with the old concept of the prime minister as first among equals or

primus inter pares, heads his chapter on prime ministerial power "Primus.. There Is No

Longer Any Inter or Pares" (Savoie, 1999: chapter 4). 8 Potentially, economic blocs might avoid these problems by creating appropriate insti-

tutions. Certainly the European Union is better off in this regard than NAFTA. How- ever, the prospects for supranational democracy emerging there, or elsewhere, should not be exaggerated. See Greven, 2000: 35-61.

9 Doern and Kirton refer to this as the "sherpa" role. See Doern and Kirton, 1996: 262.

"Sherpas" are the staff who prepare the way and do the necessary groundwork for summit meetings of political leaders. See Putnam and Bayne, 1987.

10 Doern and MacDonald, 1999, demonstrate that the AIT was modelled on international free trade agreements and consider, notwithstanding language to the contrary in the AIT, that it constitutes a pillar of the Canadian constitutional order.

11 For example, Trebilcock (2001: 546) considers that "recent decisions of the Supreme Court of Canada appear to have opened the door to a narrowing of the scope of the Labour Conventions doctrine." And a decade earlier, Howse (1990: 183) concluded that: "Grounding federal powers in international economic relations including the

power to implement treaties that trench on provincial jurisdiction, on the national dimensions branch of POGG [peace, order and good government] and of the general trade power, has become eminently plausible in light of [the] Crown Zellerbach and General Motors decisions."

12 This legal assumption is, from an historical point of view, outlandish. In most countries it was the absence of market provision that led to the construction of widely accessible

public services. 13 Similarly it has been argued that in the case of the European Union democratic and

social welfare rights are by-passed, leaving liberal rights predominant. See Offe, 2000: 71-72.

14 Wolfe (1996: 693) notes the familiar line-up of social forces around this issue. Business

groups are supporters of deep integration; social and environmental groups oppose it.

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