SEARCHING FOR PARETO GAINS IN THE RELATIONSHIP BETWEEN FREE TRADE AND FEDERALISM: REVISITING THE NAFTA, EYEING THE FTAA

Is devolution of power to sub-national governments by the constitution of federal states or by delegation in other nations a threat to maximizing the benefits of free trade within the Americas? Conversely, is the drive towards regional free trade a threat to the goals of federalism and decentralization? These are two of the many questions that arise in revisiting NAFTA and eyeing the successful creation of a Free Trade Agreement of the Americas (FTAA) by the year 2005, an initiative launched by thirty-four nations within the region in December 1994. Part I of this Article first defines federalism and distinguishes it from other decentralized forms of government. It proceeds to explore the goals of federalism and the goals of international trade agreements, with specific reference to regional agreements. Part 1 analyzes the broadened scope of modem trade agreements and the accompanying importance of constraining sub-central government actions. Part III discusses the particular problems raised by federal forms of government for regional free trade and economic integration. Part IV considers existing approaches of international trade agreements regarding the applicability of rules to subnational governments. It will explore various techniques used to reduce the impact of trade agreement rules on sub-national governments and which of these techniques are justifiable in terms of obtaining the Pareto gains described above. Part V considers possibilities for sub-national governments to participate in the rule formation processes so as to overcome political and legal obstacles to achieving Pareto gains in the relationship between regional free trade and federalism. Part VI concludes that Pareto gains in the relationship between free trade and federalism can occur by strengthening the application of anti-protectionism obligations to sub-federal governments. However, the current method of seeking the individual consent of each state and province prior to strengthening the application of anti-protectionism obligations may need to be replaced in order to achieve these Pareto gains at a more rapid pace