The ties that bind? Regionalism, commercial treaties, and the future of global economic integration

Vanderbilt Law Review

Volumn 60, Issue 5, 2007, Pages 1349-1408

  Brummer, Chris ^a  

^a VANDERBILT UNIVERSITY   (United States)

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EID: 38849175528     PISSN: 00422533     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (282)

1. This shift, though having escaped thorough and sustained attention from the legal academy, has been followed closely in the U.S. print media. See generally Constant Brand, EU Forgea Ahead with Free Trade Plans, HOUS. CHRON., May 13, 2006, available at http://www.boston.com/news/world/europe/articles/2006/05/13/ eu_forges_ahead_with_free_trade_plans/?rss_id=Boston.com+%2F+News (discussing prospects of a free trade agreement between the EU and Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama);
2. Edwin Chen, Bush Keeps Campaigning for Free Trade, L.A. TIMES, Nov. 7, 2005, at 3 (discussing President Bush's meeting with Brazilian President Luiz Inacio Lula da Silva to discuss the Free Trade Area of the Americas);
3. David Greising & Andrew Martin, U.S. to Pursue Regional, Individual Trade Talks, CHI. TRIB., Sept. 17, 2003, at 1 ("[T]he United States and the European Union likely will emphasize a regional approach and negotiate with individual nations in hopes of avoiding future impasses in large-scale global talks . . . .");
4. Tom Wright, Trade Focus Now Shifts to Regional Deals, N.Y. TIMES, July 26, 2006, at C3 ("[Regional agreements are likely to become a more important motor of trade liberalization in years ahead .,.."). Foreign media, too, have directed considerable resources charting the shift in treaty-making.
5. For just a sampling, see Gaurav Choudhury, Kamal Nath Defends India's Bilateral Trade Agreements, HINDUSTAN TIMES, Jan. 17, 2007, available at http://www.hindustantimes.com/StoryPage/StoryPage. aspx?id=6d89d239-c6e3-47e2-95dc-4028396ed3be, which discusses the creation of economic units in India, Asia, and Europe;
6. Richard Lapper, Latin America: Oil-fired Socialism, FIN. TIMES, Jan. 24, 2007, at 5, which discusses the same in Venezuela and the Americas;
7. Hisane Masaki, Free trade: Japan and... Switzerland?, ASIA TIMES, Jan. 25, 2007, available at http://www.atimes.com/atimes/Japan/IA25Dh01.html, which discusses the same in Japan and Switzerland.
8. See United Nations Conference on Trade and Development, Quantitative Data on Bilateral Investment Treaties and Double Taxation Treaties, 1989-2003, available at http://www.unctad.org/Templates/WebFlyer.asp? intItemID=3150&lang=1 (last visited Oct. 19, 2007) (indicating that in 1989, 389 bilateral treaties were in force, while in 2003, over 2000 bilateral investment treaties were in force);
9. see also WTO.org, Regional Trade Agreements Notified to the GATT/WTO and in Force, http://www.wto.org/english/tratop_e/region_e/eif_e.xls (last visited Oct. 19, 2007) (showing 24 bilateral and regional trade treaties in force as of January 1, 1990, compared with 193 regional and bilateral trade treaties currently notified to the WTO and in force as of September 15, 2006).
10. See Alphabetti Spaghetti, ECONOMIST, Oct. 3, 1998, at S19 (citing noted Columbia economist Jagdish Bhagwati's view that "preferential trade agreements create a 'spaghetti bowl' of overlapping rules . . . sure to distort some investment decisions").
11. See, e.g., Pamela A. Fuller, The Japan-U.S. Income Tax Treaty: Signaling New Norms, Inspiring Reforms, or Just Tweaking Anachronisms in International Tax Policy?, 40 INT'L LAWYER 773, 838-39 (2006) (noting that small developing countries "do not always have the requisite resources to negotiate a set of advantageous bilateral tax treaties," which leaves them at a major disadvantage in attracting investments).
12. See, e.g., Chun Hung Ling, Regionalism or Globalism? The Process of Telecommunication Cooperation within the OAS and NAFTA, 11 CURRENTS: INT'L TRADE L.J. 30, 32-33 (2002) ("[T]he basic character of regionalism is discrimination against non-members, third parties. While the regional agreement provides zero tariffs on trade among signatories and gives preferential treatment for member countries, tariffs for non-members are not lowered.").
13. See infra Part II.A. For the purposes of this Article, I make reference primarily to the European Community, as opposed to the more common designation "European Union," because the EC, one of three pillars of the EU, is the relevant institution governing the EU's commercial policy, as well as the official legal personality that committed member states to policies with which U.S. BITs ultimately conflicted.
14. See id.
15. This language is largely adapted from conventional debates on the usefulness of RIAs in the multilateral context, where scholars largely define "open" regionalism as that which extends the terms and benefits of regional integration to the rest of the world and "closed" regionalism that locks in special benefits for members. See, e.g., Fuller, supra note 4, at 872-73 ("The options include: . . . closed regionalism, whereby trade benefits are not extended at all; and . . . open regionalism, whereby benefits are extended unilaterally.").
16. See infra Part II.B.
17. For a sample of some of the more important works in the economics and legal literature, see generally JAGDISH BHAGWATI & ANNE O. KRUEGER, THE DANGEROUS DRIFT TO PREFERENTIAL TRADE AGREEMENTS (1995), which analyzes the United States' "infatuation" with free trade areas and whether NAFTA is strengthening or weakening the international trading system;
18. ROBERT Z. LAWRENCE, REGIONALISM, MULTILATERALISM, AND DEEPER INTEGRATION (1996), which examines the debate over whether regional arrangements are stumbling blocks or building blocks for a more integrated and successful international economy;
19. MAURICE SCHIFF & ALAN WINTERS, REGIONAL INTEGRATION AND DEVELOPMENT (2003), which evaluates regionalism from the perspective of developing countries and presents a comprehensive account of existing theory and empirical results;
20. Sungjoon Cho, Defragmenting World Trade, 27 NW. J. INT'L L. & Bus. 39 (2006) [hereinafter Cho, Defragmenting], which argues that the current proliferation of regional trade agreements has fragmented world trade, impeding the WTO from fulfilling its purpose for existence.
21. See sources cited supra note 9.
22. World Trade Organization, Members and Observers, http://www.wto.org/ English/thewto_e/whatis_e/tif_e/org6_e.htm (last visited Oct. 18, 2007) (noting that there were 151 members as of July 27, 2007).
23. See Mohamed Ariff, Why Failure is Not an Option at Doha Talks, NEW STRAITS TIMES, Sept. 4, 2006, at 22 (noting that the WTO Doha talks must succeed if freer flow of goods is to occur worldwide);
24. see also Scott Billquist, Update on CE, Telephony, Internet Rules Sought in WTO Talks, COMM. DAILY, Sept. 6, 2007, available at http://www.itic.org/archives/articles/2007b/commDaily- 090607.php (discussing WTO members' general reduction of tariffs and noting that the WTO's multilateral framework must be altered to allow for a WTO Information Technology Agreement).
25. SCHIFF & WINTERS, supra note 9, at 1;
26. see also infra note 31 (describing the WTO rules permitting RIAs).
27. COLUMBIA ENCYCLOPEDIA (6th ed. 2007), available at http://www.encyclopedia.com/doc/ 1E1-mostfavo.html (last visited Oct. 19, 2007) (defining the "most-favored nation" clause).
28. See infra Part II.A.1.
29. See, e.g., North American Free Trade Agreement, U.S.-Can.-Mex., ch. 11, sec. B, Dec. 17, 1992, 32 I.L.M. 605 (1993) (providing for private settlement dispute mechanisms against host states);
30. Central American Free Trade Agreement, U.S.-Cent. Am.-Dom. Rep., art. 10.16, Aug. 5, 2004, available at http://www.ustr.gov/Trade_Agreements/ Bilateral/CAFTA/CAFTA-DR_Final_Texts/Section_Index.html.
31. For example, besides incorporating (albeit much less comprehensively) the EU's basic political organs of a council, commission and parliament, the AU, an organization of fifty-three African member states, also possesses significant interventionist powers and aspirations. In terms of security and human rights, the organization coordinates the Pan-African Stand-by Rapid Reaction Force, already active in Darfur, and envisions that this number will grow to 15,000 troops by 2010. TIMOTHY MURITHI, THE AFRICAN UNION: PAN-AFRICANISM, PEACEBUILDING AND DEVELOPMENT 34 (2005). And in economic matters, the AU's Trade Ministerial is the continent's foremost institution in the coordination of intra-regional, interregional, and multilateral trade agreements. Under the treaties constituting the AU, subregional agreements are meant to be consolidated.
32. INT'L CONFEDERATION OF FREE TRADE UNIONS, THE SPREAD OF BILATERAL AND REGIONAL TRADE AGREEMENTS 11 (2004) http://www.gurn.info/topic/trade/icftu_0604.pdf. The organization also directs financial institutions that include the African Investment Bank and the African Monetary Fund. Alongside these financial institutions, the organization has spearheaded the development of a central bank, whose currently modest regulatory functions are scheduled to include the issuing of the planned African Single Currency by 2028.
33. AFRICAN UNION, STRATEGIC PLAN OF THE COMMISSION OF THE AFRICAN UNION, 2004-2007 STRATEGIC FRAMEWORK OF THE COMMISSION OF THE AFRICAN UNION 54 (2004), http://www.africa-union.org/AU summit 2004/volume 2 final - English - June 2004.pdf.
34. Mercosur, a South American bloc consisting of Argentina, Brazil, Paraguay, Venezuela, and Uruguay as full members, and Bolivia and Chile as associate members, has also developed deeply integrated interventionist structures in a range of policy fields. Also like the EU, its original aims included the establishment of a common market where goods, capital, services, and labor circulate freely. FRANCESCO DUINA, THE SOCIAL CONSTRUCTION OF FREE TRADE: THE EUROPEAN UNION, NAFTA, AND MERCOSUR 20 (2006). However, in the process of executing its oversight duties, its regional directives have come to cover, as commentators have noted, additional policy sectors as diverse as medical care, public spaces like airports, illegal drugs, food, and more.
35. Id. at 86. With respect to public health and food policy in particular, Mercosur has gone beyond even the EC in the standardization of rules amongst member states relating to the procedures and processes adhered to in the production of some goods, especially dairy products.
36. Id. at 116-30. In doing so, Mercosur has developed a sophisticated legal architecture with harmonizing powers far beyond those provided by many other RIAs.
37. Indeed, in the case of both NAFTA and CAFTA, the most important institutional mechanisms are those pertaining to the implementation of investor-state dispute mechanisms. See supra note 16.
38. Id.
39. See Alex M. Niebruegge, Comment, Provisional Application of the Energy Charter Treaty: The Yukos Arbitration and the Future Place of Provisional Application in International Law, 8 CHI. J. INT'L L. 355, 375 (2007) (noting the failure of the OECD in 1998).
40. The Doha round was launched in Doha, Qatar, in 2001, to lower trade barriers around the world while accelerating the participation of the least-developed countries in the global economy. Particular emphasis was placed on lowering tariff barriers and subsidies concerning agricultural goods, a policy that met significant resistance by both the United States and the EU. Ultimately, in July 2006, the parties failed to reach an agreement on the matter, resulting in the formal suspension of trade talks. For an account of the various interests involved in the round's collapse, see Peter Sutherland, The Doha Debacle, WALL ST. J., Aug. 2, 2006, at A10.
41. See Sungjoon Cho, Breaking the Barrier Between Regionalism and Multilateralism: A New Perspective on Trade Regionalism, 42 HARV. INT'L L.J. 419, 425 (2001) [hereinafter Cho, Breaking the Barrier] ("Some economists argue that the geographical or regional concentration of trade is attributable to the 'natural factor of geographical proximity.' ").
42. The EU, ASEAN, and Mercosur, in particular, operate as initial points of entry for negotiation. For a discussion of the challenges facing such coordination in the EU and Mercosur, see infra Parts II-III.
43. In order to restart the process, the WTO has initiated efforts at "quiet diplomacy" in which WTO officials coordinate informal discussions with government officials and lawmakers of the organization's various members. According to the WTO, full-fledged negotiations will only come when members "put numbers to the flexibilities they have already expressed in general terms on key issues." Pascal Lamay, Director-General, World Trade Organization, Director-General's Remarks at the Informal TNC (Nov. 16, 2006), available at http://www.wto.org/english/news_e/news06_e/ tnc_dg_stat_16nov06_e.htm.
44. Part of this response, some commentators suggest, has been not only emulative, but also defensive in nature. In what has been termed the "domino theory" of regionalism, Richard Baldwin has argued that some states enter into regional organizations because of the costs that nonmembers bear when they are not part of the RIA. When more states join a particular RIA, the costs of not participating grow, particularly when nonmembers are not able to enjoy some kind of preferential treatment. These externalities often spur outsiders to form their own RIAs. See generally Richard E. Baldwin, A Domino Theory of Regionalism, in EXPANDING MEMBERSHIP OF THE EUROPEAN UNION 25 (Richard E. Baldwin et al. eds., 1995).
45. See also SCHIFF & WINTERS, supra note 9, at 231 (summarizing Baldwin's argument and showing, among other things, how a regionalized world may have less than benign effects where countries cannot form adequate alliances).
46. See SCHIFF & WINTERS, supra note 9, at 10-11 (discussing the lack of consistency in the vast range of empirical results regarding the merits of regionalism). For more on the reasons behind the debate,
47. see infra note 36 and accompanying text.
48. See Regionalism, http://www.worldbank.org/html/extdr/thematic.htm (follow "Trade" hyperlink; then select "Regionalism" from the "Select a Topic in Trade Research" pull-down menu) (last visited Sept. 5, 2007) ("Given the very 'second best' nature of preferential trade arrangements (PTAs), unlike global, multilateral trade liberalization, there are few universally accepted rules of conduct that are applicable to all such arrangements.");
49. see also Ken Heydon, After Cancun: The Danger of Second Best, OECD OBSERVER, Dec. 2003, available at http://www.oecdobserver.org/news/fullstory.php/aid/1180 (predicting a "serious weakening" of the multilateral trade system, since regionalism often entails "two-speed liberalisation" and "optouts" to open global trade, thereby creating vested interests that will make global free trade "even more difficult than it already is").
50. SCHIFF & WINTERS, supra note 9, at 23-25.
51. For another summary of the stumbling block thesis, see Cho, Breaking the Barrier, supra note 22, at 430.
52. Id.
53. Specifically, as customs unions, RIAs comprise the main exception to the MFN principle. WTO rules allow countries in RIAs to afford one another preferential treatment, so long as the RIA meets certain conditions. The specific exception is memorialized under Article XXIV of the General Agreement on Tariffs and Trade. General Agreement on Tariffs and Trade art. XXIV, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter GATT]; Cho, Breaking the Barrier, supra note 22, at 451. Namely, they must not on the whole raise protection against excluded countries; they must reduce internal trade tariffs to zero and remove "other restrictive regulations of commerce" other than those justified by other GATT articles; and they must cover "substantially all the trade."
54. GATT, supra. Though these requirements are not in themselves easy to realize, countries that have undergone regional integration may view further competition as undesirable, and thus find the RIA exception an attractive option.
55. Jaime de Melo, Regionalism and Developing Countries: A Primer, 41 J. WORLD TRADE 351, 353 (2007).
56. See SCHIFF & WINTERS, supra note 9, at 33 (noting that the concepts of trade creation and diversion continue to dominate the discussion of RIAs). This scenario would arise where, for example, goods from outside the regional bloc would be cheaper if all suppliers faced the same tariffs. Although goods from a member state inside the bloc would no longer face tariffs, the member states would be granted a competitive edge. In such a circumstance, the importing, preference-granting country absorbs increased costs, reducing marginal levels of efficiency. These increased costs typically consist of more than just a wealth transfer from consumers in the taxpaying state to the exporting state. Because the real cost of imports rises insofar as the exporter is less efficient than the non-member state competitor, real resources are wasted by the diversion.
57. Id. at 13.
58. See generally id. (providing a more recent critical account, noting how the potentially beneficial (i.e. competitive) effects of regionalism are often subverted, creating trade diversion).
59. Id.
60. See, e.g., Robert Hormats, The Regional Way to Global Order, in THE GLOBAL AGENDA (1995) (arguing that RIAs can be viewed as more feasible alternatives to complicated and costly multilateral negotiations);
61. Robert Z. Lawrence, Emerging Regional Arrangements: Building Blocks or Stumbling Blocks?, in FINANCE AND THE INTERNATIONAL ECONOMY 26 (Richard O'Brien ed., 1991) (arguing that RIAs provide a route for subsequent liberalization and growth among member-states). This view is also the official view of the WTO, though its embrace of the treaties reflects as much the fact that regional agreements are "here to stay."
62. For a summary of the view of the WTO Director-General, see Pascal Lamay, Director-General, World Trade Organization, Regional Agreements: The 'Pepper' in the Multilateral 'Curry' (Jan. 17, 2007), available at http://www.wto.org/english/news_e/sppl_e/sppl53_e.htm.
63. Zdenek Drabek, Regionalism and Trade Discipline, in CAN REGIONAL INTEGRATION ARRANGEMENTS ENFORCE TRADE DISCIPLINE?: THE STORY OF EU ENLARGEMENT 59 (Zdenek Drabek ed., 2005), available at http://www.palgrave.com/pdfs/1403941602.pdf.
64. SCHIFF & WINTERS, supra note 9, at 113 ("RIAs allow countries to make commitments on matters that are difficult to negotiate multilaterally. .. .").
65. Lucian Cernat & Sam Laird, North, South, East, West: What's Best? Modern RTAs and their Implications for the Stability of Trade Policy, in CAN REGIONAL INTEGRATION ARRANGEMENTS ENFORCE TRADE DISCIPLINE?: THE STORY OF EU ENLARGEMENT, supra note 35, at 73. The article is also available at http://www.nottingham.ac.uk/economics/credit/research/ papers/CP.03.11.pdf.
66. CERNAT & LAIRD, supra note 37, at 5.
67. Id.
68. See de Melo, supra note 31, at 353 ("[I]t is difficult to ascertain what trade policy the member countries would have followed if they had not chosen a preferential approach to trade policy (e.g., what agricultural policy would have emerged in Europe in the absence of RTAS).").
69. This is, perhaps, largely due to the fact that "[i]n recent years, both multilateralism and regionalism evolved to steps towards integration that go beyond tariffs or non-tariff border measures. Deep integration ... is becoming an essential feature of both globalisation and regionalisation . . . ." CERNAT & LAIRD, supra note 37, at 7.
70. Id.
71. Drabek, supra note 35, at 57.
72. See id. at 59. According to most economists, deep integration provides "scale and competition gains" relevant to either context, even though it involves "far more complex policymaking than would a looser free trade agreement." THE WORLD BANK, TRADE BLOCS 9 (2002), available at http://ctrc.sice. oas.org/TRC/Articles/Regionalism/Trade_Blocs_Chap01.pdf (internal quotation marks omitted).
73. See THE WORLD BANK, supra note 44.
74. Though virtually no scholarship has addressed the relationship between bilateralism and regionalism, a good deal of work has centered on the implications bilateralism holds for multilateral institutions. Perhaps the most groundbreaking work has concerned what some scholars describe as "nested bilateralism"-the use by governments of bilateral agreements within larger multilateral frameworks, among other things, to forward multilateral objectives (particularly liberalization). According to proponents in this field, "bilateral agreements can substitute for multilateral treaties, with new bilateral understandings replacing those earlier multilateral goals and outcomes."
75. See John P. Willerton et al., Complex Security Institutions: Nested Bilateralism in Commonwealth of Independent States, (Oct. 12-14, 2006), at 2 (on file with author). Here, too, scholars collapse regionalism and multilateralism under one term"multilateralism"-and in so doing fail to chart a clear conceptual path for the study of the (at times dissonant) interaction of bilateralism and regional integration.
76. Besides commercial agreements like trade and investment treaties, tax treaties, commitments relating to extradition, judicial assistance, and even drug control are all routinely executed on a bilateral basis.
77. United Nations Center on Trade and Development, BITs Database, http://www.unctad.org/Templates/WebFlyer.asp?intItemID=3150&lang=1 (last visited Sept. 5, 2007) (indicating the aggregate number of BITs in place between 1990 and 2002).
78. Alexander C. Chandra, Opinion, The Benefits and Dangers of Bilateral FTAs for Indonesia, JAKARTA POST, Dec. 20, 2004, http://www.bilaterals.org/article.php3?id_article=1066;
79. Robert McMahon, The Rise in Bilateral Free Trade Agreements, COUNCIL ON FOREIGN REL., June 13, 2006, http://www.cfr.org/publication/10890.
80. The above table includes treaties that have not yet been notified to the WTO. For RIAs, BITs, and BFTAs, parentheses "( )" indicate the number of agreements currently under negotiation. Stars "*" indicate that at least one, and at most three, of the referenced treaties do not involve membership in an RIA, but a country's liberalization agreement with an RIA.
81. See WTO, Regional Trade Agreements, http://www.wto.org/english/ tratop_e/region_e/region_e.htm (last visited Oct. 19, 2007).
82. See MAURICE W. SCHIFF & L. ALAN WINTERS, REGIONAL INTEGRATION AND DEVELOPMENT IOI (2003) (noting that early RIA investment policies were "almost always activist and interventionist").
83. SCHIFF & WINTERS, supra note 9, at 20.
84. For a comprehensive analysis of this dynamic, see Zachary Elkins et al., Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000, 60 INT'L ORG. 811, 817 (2006), which discusses how BITs have been primarily "agreements between countries of starkly varying developmental levels and political traditions." This trend, however, has begun to change as an increasing number of bilateral investment treaties have been formed between developing countries.
85. See The World Bank Group, International Centre for Settlement of Investment Disputes, List of Parties to Bilateral Investment Treaties, http://www.worldbank.org/icsid/treaties/intro.htm (last visited Sept. 5, 2007) (providing a chronological list of BITs concluded through the end of 1996 and listing articles and books dealing with BITs).
86. Mary C. Kern et al., Shut Out of the Deal: The Impact of Communication Channels on Efficiency in Multiparty Negotiations 4 (unpublished manuscript), available at http://www.kellogg.northwestern.edu/deliberation/papers/ diermeier.doc (last visited Oct. 19, 2007).
87. Indeed, from the United States' perspective, many advocates of BITs view the agreements as a kind of foreign aid. This is not to say, however, that all countries, particularly quickly developing ones, are eager to enter into BITs. Particularly in Asia, successive rounds of treaty negotiations between the U.S. and emerging economies in the region have ended in failure. These states distinguish themselves from many least-developed countries insofar as they "are sophisticated and independent enough to resist a U.S. dictation of terms." Michael R. Reading, Note, The Bilateral Investment Treaty in ASEAN: A Comparative Analysis, 42 DUKE L.J. 679, 691 (1992). Still, their economic models do not allow them to adopt more open investment policies.
88. Id.
89. Of course, developed states, too, may impede multilateral liberalization, especially where they fear the application of liberalization as applied to their own industries. This was the case, for example, in the failed OECD-sponsored Multilateral Agreement on Investment ("MAI"). In this agreement, not only did developing countries have problems with various formulations that they thought would impede national sovereignty and regulatory prerogatives, but also Canada and France objected to the measures out of a fear that an unrestricted capital market would potentially lead to the swamping of their cultural industries by the U.S. entertainment industry. As will be seen below, this is a recurring issue in multilateral forums. M. SORNARAJAH, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT 291-97 (2004);
90. see also infra Part II.A.2 (discussing EU protection of audio-visual services).
91. By way of example, only two RIAs - NAFTA and CAFTA - provide for unilateral dispute resolution against the host state at the insistence of the foreign investor where a cause of action arises, which is a common feature of many BITs. Furthermore, other RIAs, such as ASEAN, directly regulate investment even among their members, but do not provide other common features of U.S. BITs, such as the inclusion of portfolio investment under the definition of "investment," or the pre-establishment of national treatment of foreign investment. Id. at 304, 321. Because of the relative strength of BITs, they have been the preferred instrument of the United States. Even in multilateral negotiations such as the MAI, the U.S. government has striven to make clear that BITs would continue to be in effect.
92. This is particularly evident in bilateral investment treaties, which extend deeper protections than those available under most regional umbrellas. See LUKE ERIK PETERSON, INT'L INST. FOR SUSTAINABLE DEV., BILATERAL INVESTMENT TREATIES AND DEVELOPMENT POLICY-MAKING 3 (2004), available at http://www.iisd.org/pdf/2004/trade_bits.pdf (noting that some BITs - especially those championed by the U.S., Canada, and Japan-may extend protections prior to the establishment of the investment in the host state's territory).
93. Richard Morrison, Efficient Breach of International Agreements, 23 DENV. J. INT'L L. & POL'Y 183, 220 (1994).
94. Id.
95. Ben Rosamond, Regional Integration in Europe and Asia, in SOCIAL CHANGES IN ASIA AND EUROPE IN THE AGE OF GLOBALISATION (Trond Gilberg & Ulrich Niemann eds., 2001) 144, 144-50, available at http://unpanl.un.org/intradoc/groups/ public/documents/APCITY/UNPAN004892.pdf.
96. See SCHIFF & WINTERS, supra note 9, at 7-9 (listing explicitly stated objectives for regionalism by politicians and in investment instruments themselves).
97. For example, the AU, which was established in 1994 to replace the more loosely aligned Organization of African Unity, has embraced the political integration of the continent as an express objective. Department of Foreign Affairs, Republic of South Africa, Organization of African Unity (OAU)/African Union (AU), http://www.dfa.gov.za/foreign/Multilateral/africa/oau.htm (last visited Oct. 19, 2007). Modeled largely after the EU and adopting such institutions as a Commission, Council, Parliament, and Court of Justice, it actively advances policies concerning not only economic development, but also international affairs, security, and defense. Id. In South America, too, both the Andean Group and Mercosur have evolved over time to encompass not only free trade areas, but also political fields. Mercosur, in particular, expressly looks back to colonial exploitation and what many leaders view as a backwards heritage of European and North American domination in order to develop its economic policy and foster economic and social development.
98. Marcos Aurelio Guedes de Oliveira, Mercosur: Political Development and Comparative Issues with the European Union, 5 JEAN MONNET/ROBERT SCHUMAN PAPER SERIES, July 2005, at 2, available at http://www6.miami.edu/eucenter/ guedesfinal.pdf. As a result, the organization has taken a variety of steps to eschew and diminish American influence in the region, and is largely viewed as a rival to the U.S.-led Free Trade Area of the Americas.
99. Eduardo Gudynas, MERCOSUR and the FTAA: New Tensions and New Options, INTERHEMISPHERIC RESOURCE CTR., Nov. 11, 2003, http://www.globalpolicy.org/globaliz/econ/2003/1111mercosurftaa.htm;
100. see also infra Part II.B (describing tensions between Brazil, Argentina, and Venezuela, and the United States).
101. This was determined by searching whether the particular RIA had a customs union. If so, the RIA was listed as having a closed trade policy.
102. See Steve Peers, Living in Sin: Legal Integration Under the EC-Turkey Customs Union, 7 EUR. J. INT'L L. 411, 411, 429 (1996) (noting that the EC entered into a formal customs union with Turkey on Dec. 31, 1995, a process that paralleled the EC's own development in prior years).
103. See supra Part II.A.2 (discussing the EC's investment policy and its potential conflict with BITs by member nations).
104. See Christopher Lion, Regional Trade Agreements in the Western Hemisphere, BUS. AM., Dec. 1994, available at http://findarticles.eom/p/articles/mi_m1052/is_n12_v115/ai_15976005 ("Despite its name, CARICOM currently operates as a customs union and not a common market.").
105. Many CARICOM member states have entered into various BITs individually, distinct from those BITs entered into between CARICOM, on behalf of its member states, and another nation. Thus, it can be inferred that CARICOM does not preclude member countries from entering into investment treaties on their own accord. See, e.g., UN Conference on Trade & Development, Total Number of Bilateral Investment Agreements Concluded, Antigua and Barbuda, June 1, 2006, available at http://www.unctad.org/sections/dite_pcbb/docs/antigua. pdf [hereinafter UNCTAD] (BIT with Germany and the United Kingdom);
106. UNCTAD, supra, Jamaica, available at http://www.unctad.org/ sections/dite_pcbb/docs/jamaica.pdf (BITs in force with ten nations);
107. UNCTAD, supra, Trinidad and Tobago, available at http://www.unctad.org/sections/dite_pcbb/docs/Trinidad%20and%20Tobago.PDF (BITs with seven nations).
108. See Rolf Mirus, Should We Trade NAFTA for a Customs Union?, U. ALTA. EXPRESS NEWS, Nov. 30, 2001, http://www.expressnews.ualberta.ca/article.cfm?id=1538 (discussing that a customs union should take the place of NAFTA).
109. See Ernest H. Preeg, A New World Economic Strategy, J. COM., May 17, 1995, at 8A ("NAFTA's investment provisions are a model for the OECD agreement shows that an open investment policy can be beneficial to developing and developed countries."). Given the contemporaneous presence of the United States and Mexico as NAFTA members, and the contrasting number of BITs to which each is a party, there may be an especially wide divergence of investment policies in this context.
110. See supra note 50 and accompanying table (indicating that the United States is party to over twice as many BITs as is Mexico);
111. see also UNCTAD, supra note 69, Canada, available at http://www.unctad.org/sections/dite_pcbb/docs/canada.pdf (party to BITs with twenty-three nations).
112. Under Mercosur Resolution 32, member states individually cannot negotiate trade or economic agreements with other countries without first attempting to create consensus among members. This legal barrier has caused considerable challenges in the trade context. See infra Part II.B.2.
113. It is important to note, however, that although Mercosur Resolution 32 states that members individually cannot negotiate trade or economic agreements with other countries, many members have nonetheless entered into various BITs individually. See, e.g., UNCTAD, supra note 69, Uruguay, available at http://www.unctad.org/sections/dite_pcbb/docs/uruguay.pdf (showing twenty-six BITs between Uruguay and other nations);
114. UNCTAD, supra note 69, Paraguay, available at http://www.unctad.org/sections/dite_pcbb/docs/paraguay.pdf (BITs in force with
115. See Barbara Among, We Are Committed to the East African Federation Plans, Says Kikwete, EAST AFR. (Kenya), Nov. 28, 2006 ("Tanzania and the SADC resolved to establish a Customs Union by 2010.").
116. Many SADC member states have entered into various BITs individually, distinct from those BITs entered into between SADC, on behalf of its member states, and another nation. Thus, it can be inferred that SADC does not preclude member countries from entering into investment treaties on their own accord. See, e.g., UNCTAD, supra note 69, Swaziland, available at http://www.unctad.org/sections/dite_pcbb/docs/swaziland.pdf (BITs in force with Germany and the United Kingdom);
117. UNCTAD, supra note 69, South Africa, available at http://www. unctad.org/sections/dite_pcbb/docs/south_africa.pdf (BITs in force with nineteen countries).
118. The Office of the U.S. Trade Representative has been trying to sign a variety of bilateral agreements, including BFTAs, with a diverse list of countries including Korea, Malaysia, Thailand, Ecuador, Panama, and the United Arab Emirates. See Cho, Defragmenting, supra note 9 ("The United States' recent aggressive bilateral/regional drive worldwide has put East Asian trading partners in a protective position.").
119. In part, this stems from long-held views of underdevelopment, namely the view that "the international capitalist economy operates systematically to underdevelop and distort the economies of the less developed economies." See ROBERT GILPIN, THE POLITICAL ECONOMY OF INTERNATIONAL RELATIONS 273 (1987) (noting that many countries believe that underlying the "terms of trade between advanced and less-developed countries are . . . biased against the latter" and characterized by "unequal exchange").
120. No official protocol was published, although industry analysts closely followed the demand, which was eventually subject to congressional review. See U.S.-Bulgaria Investment Treaty Additional Protocol Sent to Senate, USlNFO, Jan. 22, 2004, http://usinfo.state.gov/xarchives/listprod.html?p= washfile-english&y=2004&m=January (go to "U.S.-Bulgaria Investment Treaty Additional Protocol Sent to Senate" hyperlink under "22 Jan 2004") (describing President George W. Bush's requests to the Senate regarding approval of modifications to bilateral investment treaties with eastern European countries necessary to resolve "incompatibilities" given their "future obligations of EU membership").79. Although Article 57 of the EC Treaty after Maastricht (also known as the Treaty on the European Union) indicates that the EC's Council of Ministers may, with certain restrictions, adopt measures on the movement of direct investment, Treaty on the European Union tit. II, art. G, Feb. 7, 1992, 1992 O.J. (C 191) 1, the EC's authority over FDI frequently has been interpreted as limited. In particular, scholarly and practical focus has been placed on the extent to which fundamental EC authority is conveyed through the exclusive competency the EC wields over "commercial policy"-under which the European Court of Justice ("ECJ") has found investment to fall only partially.
121. See Opinion 1/94, Opinion Pursuant to Article 228(6) of the EC Treaty, 1994 E.C.R. 1-5267 (holding that both the EC and member states were jointly competent to conclude the General Agreement on Trade and Services, an agreement that partially covers investment as an element of services provision). Attempts have been made to bring investment more directly under the scope of commercial policy. Most recently, Article 1-13 of the failed European Constitution would have extended the definition of common commercial policy to include FDI (Article III-315). Europa: A Constitution for Europe, The Policies of the Union, http://europa.eu/scadplus/constitution/external_en.htm (last visited Oct. 19, 2007). Prior to that point, during the Nice Summit, Finland sought more expansive language in Article 133 to grant the EC exclusive competence in intellectual property and investment.
122. Horst Guenter Krenzler & Christian Pitschas, Progress or Stagnation?: The Common Commercial Policy after Nice, 6 EUR. FOREIGN AFF. REV., 291, 294 (2001). Internal squabbling between the different EC member states, however, regarding other provisions in the suggested language, along with a strong predilection against the formal forfeiture of national prerogative, forced the tabling of such an agreement.
123. Id..
124. GATT is largely inapplicable as agriculture is removed from several of the agreement's customary trade provisions. Agriculture is instead accorded exceptional treatment under Articles VI, XI, XVI and XX, which together prohibit quantitative restrictions other than tariffs on the importation and exportation of products and allow different treatment for "primary" and "nonprimary" products. GATT, supra note 31, arts. VI, XI, XVI, XX.
125. WILLIAM WALLACE, HELEN WALLACE & MARK POLLACK, POLICY-MAKING IN THE EUROPEAN UNION 183-84 (5th ed. 2000).
126. Id. at 167 (noting that under the CAP, domestic food prices are often double world prices).
127. See Q&A: Common Agricultural Policy, BBC NEWS, Dec. 2, 2005, http://news.bbc.co.uk/2/hi/europe/4407792.stm (commenting that the EU will spend 46% of its budget in 2005 on agriculture subsidies under the CAP).
128. In 2003, under the British EU Presidency, France reached an agreement on CAP reforms. This ostensibly ambitious agenda had, however, preserved the underlying framework for CAP subsidies. EU Agrees Radical' Farm Reform, BBC NEWS, June 26, 2003, http://news.bbc.co.uk/1/hi/business/3021728. stm.
129. General Agreement on Trade in Services, Apr. 15, 1994, 33 I.L.M. 1125 (1994) [hereinafter "GATS"].
130. Importantly, GATS is not an agreement on investment as such. It addresses investment as one of several different ways of gaining access to a market, insofar as the investment comprises service "through commercial presence" in a member state. SORNARAJAH, supra note 57, at 299-300.
131. Martin Roy, A Roadmap to GATS MFN Exemptions, Office of the Secretary General of the OECD, at 5 (2001), available at http://www.olis.oecd.org/ olis/2001doc.nsf/ (search "Date"; then select "Search"; then insert "A Roadmap to GATS MFN Exemptions"; then select article in English).
132. GATS, supra note 85, art. XVII.
133. The GATS permits signatories to tailor liberalization according to their own interests. Id. pt. IV. MFN is, in principle, mandatory, though members may opt out of the obligation for specific sectors on the basis of existing preferences.
134. Id. art. II, annex II. Similarly, national treatment obligations are not mandatory at all, but instead require opting in by sector.
135. Id. pt. III. This means each country negotiates its concessions with other signatories, and files an individual schedule of national treatment commitments. Each country's schedule is then annexed according to Article II of the GATS and is incorporated into the agreement. As the Working Party of the Trade Committee from the Organisation for Economic Co-operation and Development notes: The GATS permits some important permanent derogations to the application of the MFN obligation. The first of these relates to benefits conferred pursuant to economic integration agreements (Article V) [such as the Treaty of Amsterdam or the NAFTA] and labour market integration agreements (Article V bis). Parties to such integration agreements can be exempted from the MFN obligation, provided the agreement in question meets the criteria set out in Article V and V bis, e.g., substantial sectoral coverage and the absence or elimination of substantially all discrimination. Article VII on recognition also allows members to conclude certain recognition agreements on a non-MFN basis, whereas Article XIII on government procurement provides for an exception to the MFN obligation.
136. ORG. FOR ECON. CO-OPERATION & DEV., WORKING PARTY OF THE TRADE COMM., TRADE IN SERVICES: A ROADMAP TO GATS MFN EXEMPTIONS 5 (2001), available at http://www.olis.oecd.org/olis/2001doc.nsf/LinkTo/td-tc-wp(2001)25-final.
137. H. Peter van Fenema, The Liberalization of Air Transport Services in the European Union: Some Recent Developments in the Field of EC External Relations, in THE USE OF ALR AND OUTER SPACE COOPERATION AND COMPETITION 87-88 (Chia-Jui Cheng ed., 1998).
138. Id. at 91. According to the European Commission, the U.S.-sponsored open-skies system distorts and fragments the European single market because each European country is acting only in its own interests, rather than in the best interests of the market.
139. Barry James, EU Court Strikes Down Aviation Accords with U.S.; Open-Skies Pacts Stifle Competition, It Says, INT'L HERALD TRIBUNE, Nov. 6, 2002, at I.
140. Furthermore, by opening up access to flights in some countries, non-participating countries would be discriminated against. Daniel Dombey, Complex EU Legal Net Closes in On Aviation Deals, FIN. TIMES, Feb. 1, 2002, at 8.
141. This resistance shows signs of loosening as both the EC and the United States, in principle, have agreed to the idea of opening access to airline markets. Both sides have, however, been unable to negotiate concrete guidelines. See Bengt Ljung, U.S., EU Fail to Reach Deal On Open Skies, INT'L BUS. & FIN. DAILY, Jan. 12, 2007 ("[The] U.S. and EU negotiators made no progress January 11 in the stalled talks on liberalizing trans-Atlantic air travel. . . .").
142. Council Directive 89/552, art. 4, 1989 O.J. (L 298) 23 (EC), available at http://ec.europa.eu/avpolicy/reg/tvwf/implementation/promotion/index_en. htm.
143. Sandrine Cahn & Daniel Schimmel, The Cultural Exception: Does It Exist in GATT and GATS Frameworks? How Does It Affect or Is It Affected By The Agreement on TRIPS?, 15 CARDOZO ARTS & ENT. L.J. 281, 283 (1997).
144. Id. at 281.
145. Id. at 283.
146. See U.S.-E.U. Open Skies Agreement: With a Focus on DOT's NPRMRegarding "Actual Control" of U.S. Air Carriers Before the Subcomm. on Aviation of the H. Comm. on Trans, and Infrastructure, 109th Cong. (2006) (statements of Jeffrey Smisek, President, Continental Airlines, Inc., and Michael G. Whitaker, Vice President, United Airlines World Headquarters).
147. Id. (referencing the UK's policy).
148. Karen Rinaman, French Film Quotas and Cultural Protectionism, http://www.american.edu/ted/frenchtv.htm (last visited Aug. 22, 2007).
149. State Department: U.S., European Union Agree on Trade Concessions Tied to European Union Expansion, U.S. FED. NEWS, Dec. 1, 2005 (citing Press Release, U.S. Trade Representative, U.S. and European Communities Reach Agreement on Enlargement Compensation Package (Nov. 30, 2005)).
150. Eastern European countries, free to follow their own economic and foreign policy, overwhelmingly flocked to bilateral investment treaties (BITs), with eight countries signing BITs within five years of independence. For a discussion of the general content of the treaties, see Nancy Goodman, International Trade: Poland Bilateral Investment Treaty - A Reflection of United States Efforts to Shape the Economic Development of Eastern Europe, 32 HARV. INT'L L. J. 255, 259 (1991).
151. See, e.g., Kenneth J. Vandevelde, U.S. Bilateral Investment Treaties: The Second Wave, 14 MICH. J. INT'L. L. 621, 634 (1993) ("[The treaties] would serve as a symbol that these [Eastern European] States had embraced the pro-market economic policy endorsed by the United States, which could, in turn, attract private investment to these States.").
152. However, some BITs, like Poland's, contain exceptions to national treatment and MFN as pertaining to air and rail transportation. See Luke Eric Peterson, EU-US Agree to Alter US BITs With EU Accession Candidates, INVESTMENT L. & POL'Y WKLY. NEWS BULL., Sept. 19, 2003, at 1, available at http://www.iisd.org/ pdf/2003/investment_investsd_sep19_2003.pdf ("Inside US Trade reports that the areas which will now be exempted from national treatment provisions are: 'agriculture; audiovisual; securities; investment and other financial services; fisheries; hydrocarbons; subsidies; and three different modes of transport: air carrier; inland waterways and maritime.' ").
153. Indeed, prior European BITs consistently refused to adopt many of the commitments forwarded in U.S.BITs, though their refusal ostensibly aided developing countries. See, e.g., Patricia Robin, The BIT Won't Bite: The American Bilateral Investment Treaty Program, 33 AM. U. L. REV. 931, 957 (1984) (noting how Western European countries do not request screening prohibitions).
154. See U.S., EU Struggle to Solve Fight over Bilateral Investment Deals, INSIDE U.S. TRADE (D.C.), Oct. 11, 2002, at 5 [hereinafter Fight over Bilateral Investment Deals].
155. Roger J. Goebel, Joining the European Union: The Accession Procedure for the Central European and Mediterranean States, 1 LOY. U. CHI. INT'L L. REV. 15, 15 (2004-2005).
156. Id.
157. See id. at 33-36 (explaining the role of the acquis communautaire principle in the accession of new member states to the EU). This principle has been applied to existing EC member states in the course of several cases by the ECJ. In the first important case to articulate the principle, Case 26/62, Van Gend en Loos Onderneming v. Nederlandse Administratie der Belastingen [1963] ECR 1, the ECJ ruled that the aim of creating a uniform common market between different states would be undermined if Community laws could be made subordinate to national laws. The principle was then applied to countries acceding to the EC in the course of the 1969 and 1974 accession talks, during which the United Kingdom, Denmark, and Ireland were informed by the EC's Council of Ministers that they had to adopt the EC's treaties and policies in order to initiate accession negotiations. According to the then-President of the Council, Foreign Minister Harmel of Belgium, any problems of adjustment could be sought in "transitional measures" and "not in changes of existing rules," thereby making adoption of the acquis a condition that has been imposed in all subsequent accessions.
158. Id. at 34.
159. Consolidated Version of the Treaty Establishing the European Community, Nov. 10, 1997, 1997 O.J. (C 340) 3.
160. Id.
161. See Fight over Bilateral Investment Deals, supra note 105, at 6.
162. For an examination of the European Commission's explanation of the row after the fact, see Press Release, EU Comm'n, Eight Acceding Countries and U.S. Sign Bilateral Investment Understanding (Sept. 23, 2003), available at http://www.eurunion.org/news/press/2003/2003059.htm.
163. Business interests throughout the United States objected to the EU's position, with the United States Council for International Business spearheading protests from the U.S. business community. See, e.g., Model BIT Letter to Host (Latvia), U.S. Council for Int'l Bus. (Aug. 1, 2002), available at http://www.uscib.org/index.asp?documentID=2228 (protesting the "discriminatory set of rules" U.S. businesses would face vis-à-vis their European competitors and other firms from countries with BITs still in place).
164. Press Release, Richard Boucher, Spokesman, Under Sec'y for Pub. Diplomacy and Pub. Affairs, U.S. Dep't of State, Bilateral Investment Treaties with European Union Accession States (Sept. 5, 2003), available at http://www.state.gov/r/pa/prs/ps/2003/23841.htm.
165. See, e.g., Additional Protocol Concerning Business and Economic Relations, U.S.-Pol., arts. I, IV, Jan. 12, 2004, S. TREATY DOC. NO. 108-22 (2004) (regarding the Republic of Poland).
166. See, e.g., id. art. IV (regarding the Republic of Poland).
167. See, e.g., id., art. I (regarding the Republic of Poland).
168. Press Release, Eur. Union, Delegation of the Eur. Comm'n to the U.S., EU Commission President Romano Prodi on Decision to Open Membership Talks with Turkey (Oct. 6, 2004), available at http://www.eurunion.org/news/press/ 2004/200400135.htm.
169. Press Release, Eur. Union, Delegation of the Eur. Comm'n to the U.S., The European Union Opens Accession Negotiations With Croatia (Oct. 4, 2005), available at http://www.eurunion.org/News/press/2005/2005082.htm.
170. See Press Release, Eur. Union, Key Findings on the Progress Reports on Kosovo and the Potential Candidate Countries: Albania, Bosnia and Herzegovina, Montenegro, Serbia (Nov. 8, 2006), available at http://europa.eu/rapid/searchAction.do (search date range 8/11/2006 to 8/11/2006 using keywords "Albania" and "Montegro") (discussing key findings in the accession process).
171. Turkey's BIT with the United States-one of the first six ever completed by the United States with another country-offers only one sectoral exception to the MFN and national treatment obligations also provided for in the GATS (air transport). Treaty Concerning the Reciprocal Encouragement and Protection of Investments, U.S.-Turk., protocol, ¶ 1, Dec. 3, 1985, S. TREATY DOC. NO. 99-19. Similarly, Romania's BIT with the United States prohibits performance requirements and provides no sectoral exceptions overlapping with the EC. Treaty Concerning the Reciprocal Encouragement and Protection of Investment, U.S.-Rom., art. II, ¶ 5, annex, May 28, 1992, S. TREATY DOC NO. 102-36. Croatia's and Albania's BITs are similarly broad and, though providing for some post-establishment protections, proffer few sectoral exceptions to MFN and national treatment obligations and prohibit virtually all performance requirements. Treaty Concerning the Reciprocal Encouragement and Protection of Investment, U.S.-Croat., art. VII, annex, July 13, 1996, S. TREATY DOC NO. 106-29; Treaty Concerning the Reciprocal Encouragement and Protection of Investment, U.S.-Alb., art. VI, annex, Jan. 11, 1995, S. TREATY DOC NO. 104-19.
172. See Joanna Klonsky, Mercosur: South America's Fractious Trade Bloc, COUNCIL ON FOREIGN RELATIONS, Mar. 1, 2007, http://www.cfr.org/publication/12762/ (noting that Mercosur is South America's largest trading bloc).
173. Humberto Márquez, Last Bites For Andean Community?, INTER PRESS SERVICE NEWS AGENCY, Apr. 19, 2006, http://www.bilaterals.org/article.php3?id_article=4497.
174. See Horacio A. Grigera Naon, Symposium: Free Trade Areas: The Challenge and Promise of Fair vs. Free Trade, 27 L. & POL'Y INT'L BUS.1073, 1106 (1996) (noting that "the adoption of legal norms by such organs is based on consensus and subject to the unilateral veto of a member country").
175. Gary Hufbauer & Barbara Kotschwar, The United States and the Andean Community: Prospects and Problems at the End of the Twentieth Century, in THE ANDEAN COMMUNITY AND THE UNITED STATES: TRADE AND INVESTMENT RELATIONS IN THE 1990s 43, 43 (Mendoza et al. eds., 1998), available at http://www.dttc.oas.org/TRADE/Pub/Books/CAF/caftoc_e.asp. At the time, the institution was originally called the "Andean Group."
176. Id.
177. Id.
178. Regionalization had earlier been spearheaded by the Latin American Free Trade Association ("LAFTA"). Launched in 1960 and consisting of all of South America's Spanish-speaking countries, LAFTA had been viewed by many elites as reproducing on a regional scale hegemonic relationships characteristic of North-South relations. Gordon Mace, Regional Integration in Latin America: A Long and Winding Road, 43 INT'L J. 404, 412 (1988). Argentina, Brazil, and Mexico had all increased trade at a faster rate than any other members, though they were still unwilling to extend special preferences to smaller countries, preventing them from becoming dynamic participants in LAFTA.
179. William P. Avery and James D. Cochrane, Innovation in Latin American Regionalism: The Andean Common Market, 27 INT'L ORG. 181, 184 (1973). The CAN was a direct response to this experience. Championed by Chile, Colombia, and Peru - mid-sized countries that had found themselves on the losing end of LAFTA - the CAN envisioned more even economic development driven by broader sectoral liberalization.
180. Id.
181. Hufbauer & Kotschwar, supra note 125.
182. For a copy of the map, see Wikipedia, Andean Community of Nations, http://en.wikipedia.org/wiki/Andean_Community_of_Nations (last visited Sept. 30, 2007). The map's accuracy has been verified through outside sources. See, e.g., Andean Community, Who Are We?, http://www.comunidadandina.org/ingles/ who.htm (last visited Sept. 30, 2007).
183. For example, consider Albania and Croatia. For a look at the EU's accession profile for Albania, see Eur. Comm'n, Albania - EU-Albania Relations, available at http://ec.europa.eu/enlargement/albania/ eu_albania_relations_en.htm (last visited Aug. 24, 2007). For a look at the EU's accession profile for Croatia, see Eur. Comm'n, Croatia-EU-Croatia Relations, available at http://ec.europa.eu/enlargement/croatia/index_en.htm (last visited Aug. 24, 2007).
184. See Mace, supra note 127, at 418-25 (describing the disarray of the Andean Group, the predecessor RIA to the Andean Community, throughout the 1980s).
185. Hufbauer & Kotschwar, supra note 125.
186. Id. (indicating how all member states undertook privatization and unilateral steps to decrease barriers to international trade).
187. Andean Community, Regime for the Common Treatment of Foreign Capital and Trademarks, Patents, Licensing Agreements and Royalties, Andean Group Decision No. 291, (Mar. 21, 1991), available at http://www. comunidadandina.org/INGLES/normativa/d291e.htm;
188. see also Hufbauer & Kotschwar, supra note 125, at 56.
189. Andean Community, Chronological Sequence of Events, http://www. comunidadandina.org/ingles/quienes/events.htm (last visited Aug. 24, 2007).
190. Raúl Pierri, Region's Two Major Blocs Sign Free Trade Deal, INTER PRESS SERVICE NEWS AGENCY, Oct. 19, 2001, http://www.bilaterals.org/article.php3?id_article=860.
191. Id.
192. Jorge Crespo-Velasco & Gonzalo D. Bernal-Brito, U.S.-Bolivia Trade and Investment Relations, in THE ANDEAN COMMUNITY AND THE UNITED STATES, supra note 125, at 70-71.
193. See Andean Community, Trade Integration, Free Trade Area, http://www.comunidadandina.org/INGLES/comercio/customs_union.htm (last visited Aug. 24, 2007) ("Peru in August 1997 started taking steps toward its incorporation in the Andean FTA, in keeping with a Liberalization and tariff reduction program. Those steps came to an end on December 31, 2005, making the free trade area among the five CAN Member Countries a reality.").
194. Andean Community, Trade Relations With Third Countries, Andean Group Decision No. 598 (July 12, 2004), available at http://www. comunidadandina.org/INGLES/normativa/D598e.htm.
195. Id.
196. Id.
197. Id.
198. On their own, Andean countries have possessed little leverage in negotiating favorable terms for economic agreements because the U.S. economy has dwarfed that of any individual state. Together, however, the CAN represents one-third of South America's market, as well as an important source of two "strategic" commodities for the United States-petroleum and narcotics-which gives the region an enhanced importance and bargaining position. Hufbauer & Kotschwar, supra note 125, at 45.
199. See CARLOS MALAMUD, ELCANO ROYAL INST., VENEZUELA'S WITHDRAWAL FROM THE ANDEAN COMMUNITY OF NATIONS AND THE CONSEQUENCES FOR REGIONAL INTEGRATION (PART I) 3 (2006), http://www.realinstitutoelcano.org/analisis/983/ 983_Malamud_Venezuela_CAN_partI.pdf [hereinafter MALAMUD, PART I] (describing the intention of the treaties to "open new markets" and the fact that Mercosur's markets are much larger than Argentina's).
200. See Richard Lapper & Hal Weitzman, Chavez Casts A Long Anti-American Shadow Over Regional Capitals: Bolivarian Axis, FIN. TIMES, May 2, 2006, at 10 (discussing growing anti-American sentiment encouraged by Venezuelan President Hugo Chavez).
201. Morales and Chavez branded such attempts as betraying South American integration (Peruvian president Alejandro Toledo was described as a "traitor" for signing the agreements), and asserted that the attempts signaled the death of the Andean enterprise. MALAMUD, PART I, supra note 145, at 2.
202. See Carlos Malamud, Venezuela's Withdrawal from the Andean Community of Nations and the Consequences for Regional Integration, REAL INSTITUO ELCANO, May 30, 2006, available at http://www.realinstitutoelcano.org/analisis/983.asp (discussing Venezuela's withdrawal from CAN "after the signing of the FTAs between Colombia and Peru and the United States").
203. Márquez, supra note 123.
204. Id.
205. Id.
206. Id. (discussing the complaint of the Venezuelan trade minister that the Peruvian and Columbian treaties "granted the United States quotas in products that Venezuela sold" such nations, for example, pharmaceuticals).
207. Id. Perhaps ironically, however, it has been the United States that has objected most to the treaties, in part due to the absence of language calling on signatories to adhere to international labor and environmental standards.
208. See Jennifer Loven, Bush: Protectionism Will Cost U.S. Jobs, WASHINGTONPOST.COM, Oct. 13, 2007, http://www.washingtonpost.com/wp-dyn/content/article/2007/10/13/AR2007101300569. html (noting George Bush's efforts at restoring the stalled treaties in Congress).
209. Id.
210. Id.
211. MALAMUD, PART I, supra note 145, at 6.
212. This translates into $466 million annually. Id.
213. Nevertheless, as a show of support, Bolivia joined other initiatives fomented by Chavez, like the Alternativa Bolivariana de las Americas and the Peoples' Trade Treaty (Tratado de Comercio de los Pueblos, or TCP). Id.
214. Venezuela has, for example, agreed to form a Working Group with Mercosur's remaining members to propose regulations for trade between the parties. See MALAMUD, PART I, supra note 145, at 2 (discussing Venezuela's potential reasons for choosing Mercosur over CAN). If successful, few substantive changes will be made in the economic relationship between Venezuela and CAN members, though the status of their alliance will be frozen at the level of liberalization that existed as of April 22, 2006 - the day on which Venezuela denunciated the treaty.
215. For a copy of the map, see Wikimedia, Image: Map of MERCOSUR, http://commons.wikimedia.org/wiki/Image:Map_of_MERCOSUR.png (last visited Sept. 30, 2007). The map's accuracy has been verified through outside sources.
216. See, e.g., Portal Oficial MERCOSUR, http://www.mercosur.int/msweb/ (last visited Oct. 26, 2007); Profile: Mercosur -Common Market of the South, BBC News, May 24, 2007, http://news.bbc.co.Uk/1/hi/world/americas/5195834.stm.
217. Id.
218. Id.
219. Id.
220. CARLOS MALAMUD, ELCANO ROYAL INST., VENEZUELA'S WITHDRAWAL FROM THE CAN (ANDEAN COMMUNITY OF NATIONS) AND ITS EFFECTS ON REGIONAL INTEGRATION (PART II): THE IMPACT ON MERCOSUR (ARI) 1-2 (2006), http://www.realinstituoelcano.org/analisis/996/ 996_Malamud_Venezuela_CAN_partII.pdf [hereinafter MALAMUD, PART II].
221. Id.
222. See id. at 2 ("The impact of the meeting was such that a senior government official from Argentina asked: 'How can there be a meeting of Mercosur which excludes Brazil and Argentina?'").
223. Id.
224. Id.
225. Márquez, supra note 123.
226. MALAMUD, PART II, supra note 164, at 2.
227. Id.
228. See generally MALAMUD, PART I, supra note 145 (describing Venezuela's skepticism of bilateral agreements with the United States).
229. Besides Colombia and Peru, whose BFTAs with the United States sparked Venezuela's ultimate termination of its membership in the CAN, Chile, a third associate member, has signed fifteen BFTAs, including agreements with the United States, the EU, China, Japan, and Korea. Chile is currently in the process of negotiating other BFTAs with a variety of countries, including India. See Organization of American States, Chile-India, http://www.sice.oas.org/TPD/ CHL_IND/CHL_IND_e.asp#new (last visited Aug. 24, 2007) (regarding developments in negotiations with India).
230. MALAMUD, PART II, supra note 164, at 2. When announcing Venezuela's intention to join Mercosur, Chavez proclaimed that "if Mercosur has to die for true integration to be born, then so be it."
231. Id. He also warned Mercosur's member states that if the organization "did not undertake a profound restructuring, laying greater emphasis on social issues, it might endure the same fate as the CAN."
232. Id. Part of this restructuring lay, accordingly, in "decontaminating" the bloc of U.S.-supported policies. Michael Astor, Mercosur Leaders Grapple Over Direction, BOSTON GLOBE, Jan. 19, 2007, http://www.boston.com/business/articles/2007/01/19/ south_american_leaders_focus_on_poor.
233. See MALAMUD, PART II, supra note 164, at 6 (discussing Chavez's trade policies as "part of his attempts to change . . . the geopolitical map of Latin America").
234. For a description of ALBA in English, see generally Alternativa Bolivariana de las Americas, http://www.alternativabolivariana.org/pdf/ alba_mice_en.pdf (last visited Aug. 24, 2007).
235. Under ALBA, Venezuela would additionally help Bolivia and other participants finance up to fifty percent of their oil bill and would create a matching fund to finance agricultural projects, food production and small-to-medium size industries. Natalie Obiko Pearson, Chavez Aims to Meet Left's Energy Needs, INT'L BUS. TIMES, Apr. 28, 2007, http://www.ibtimes.com/apnews/20070428/venezuela-oil-diplomacy.htm.
236. See MALAMUD, PART I, supra note 145, at 1 ("[Positions are starting to polarise and it is regional integration itself that is under the knife.").
237. See supra text accompanying notes 26-33.
238. For this reason, RIAs can be said to create a "club good," namely a preferential market. See generally Chris Brummer, Regional Integration and Incomplete Club Goods: A Trade Perspective, 8 CHI. J. INT'L L. (forthcoming winter 2008) (showing how RIAs exhibit some, though not all, characteristics of economic clubs).
239. SCHIFF & WINTERS, supra note 9, at 34.
240. Id.
241. For purposes of simplicity, I am assuming surplus production capacity in Germany. If there was, on the other hand, full employment, one sector would theoretically have to contract for Germany's factories to produce more cars (to meet increased demand from trade diversion). This contraction would have to be factored into the losses incurred by the RIA. I am also bracketing, for the moment, demand curve analysis. Presumably, if tariffs were removed on Japanese automobiles, more Italian consumers would be able to afford cars. Depending on the relationship between the price of the good and the amount or quantity the consumer is willing and able to purchase (the "demand curve"), more Japanese cars would be sold, comprising additional possible losses to the RIA.
242. Andrew T. Guzman, Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 VA. J. INT'L L. 639, 682-83 (1998).
243. Because neighboring states are often competitors for foreign investment, economic theory suggests this will be a significant issue in RIAs.
244. See Guzman, supra note 184, at 683-84 ("[A] regime that allows for more contracting between host governments and investors is more efficient than a regime in which potential hosts cannot effectively commit to any particular behavior or agreement.").
245. Id. at 681-82. To be sure, a firm could choose to repatriate its capital outside the RIA in the face of adverse governmental conduct, and a country could be subject to reputational costs slowing future investment. Nevertheless, repatriation would entail its own transaction costs, and though reputational damages could be significant, the very existence of BITs suggests that, in the words of Guzman, "there is no reason to think that reputational concerns are enough to cause [countries] to honor commitments."
246. Id. at 682.
247. Alberta Sbragia, Politics in the European Union, in EUROPEAN POLITICS TODAY 457, 459 (Gabriel A. Almond et al. eds., 3d ed. 2006)
248. (quoting Jack Hayward, The Populist Challenge to Elitist Democracy in Europe, in ELITISM, POPULISM, AND EUROPEAN POLITICS 10, 29 (Jack Hayward ed., 1996)).
249. See Allan Rosas, The External Relations of the European Union: Problems and Challenges 59 (Sept. 16-19, 1998) (unpublished manuscript presented at the Forum for U.S.-E.U. Economic Affairs, Helsinki, on file with author). As Charles A. Kupchan notes: The French used to be alone in looking to the EC as a counterpoise to America, but the other members have now joined in. Tony Blair has asserted, "Whatever its origin, Europe today is no longer just about peace. It is about projecting collective power." Germany's Chancellor Gerhard Schröder called for a "more integrated and enlarged Europe" to offset U.S. hegemony. According to Romano Prodi, the [former] President of the European Commission, the EC's executive body, one of the chief goals of the union is to create "a superpower on the European continent that stands equal to the United States." Goran Persson, the Prime Minister of Sweden, a country that long ago renounced power politics, recently remarked that the EU is "one of the few institutions we can develop as a balance to U.S. world domination."
250. Charles A. Kupchan, The End of the West, ATLANTIC MONTHLY, Nov. 2002, at 42. 190. Andean Community, Who Are We?, http://www.comunidadandina.org/ingles/who.htm (last visited Aug. 24, 2007).
251. See SCHIFF & WINTERS, supra note 9, at 19-21 (arguing that such pooling may enhance the effectiveness of medium and small-size states, though cooperation of this kind does not necessarily require trade preferences).
252. See Olson & Zeckhauser, An Economic Theory of Alliances, 48 REV. ECON. & STAT. 266, 267 (1966) ("In the sharing of the costs of efforts to achieve a common goal in small groups, there is . . . a surprising tendency for the 'exploitation' of the great by the small.").
253. Indeed, according to at least one commentator, even industrialized countries continue the drive for regional integration in hopes of liberalizing services to counter what some regard as "unfair competition due to, for example, piracy or poor labor standards. They also desire to open up markets for their services sectors, where they have a comparative advantage." Agustín Carstens, Deputy Managing Dir., Int'l Monetary Fund, Making Regional Economic Integration Work, Address at the Annual Meeting of the Pakistan Society of Development Economists (Jan. 12, 2005), available at http://www.imf.org/external/np/speeches/2005/011205.htm.
254. Many small countries enter into RIAs with hopes of attaining an advantage over other similar countries in attracting FDI. "Raising the level of FDI - or domestic investment, for that matter-requires making a country attractive vis-à-vis other countries. Increasing market size helps in this regard. Ensuring market access to a major market by entering a [preferential trading agreement] may be one way of achieving this." Id. Only where the size of an RIA grows may a large country, due to the economies of scale produced by regional integration, stand to lose from failed cooperation - though even here it is still less than a small state stands to lose.
255. David Singh Grewal, Network Power and Global Standardization: The Controversy Over the Multilateral Agreement on Investment, in GLOBAL INSTITUTIONS AND RESPONSIBILITIES: ACHIEVING GLOBAL JUSTICE 124, 128 (Christian Barry & Thomas W. Pogge eds., 2005) ("[T]he more people who use a given standard, the more attractive it will be for others to use that same standard because of the positive feedback dynamic, the possibility of cooperating with greater numbers of people via the same convention.").
256. Id.
257. Id. at 131-32.
258. This will especially be the case where, as in the EC, candidate states are small or geographically isolated, thereby leaving few viable partners for regional integration.
259. Grewal, supra note 195, at 131-32.
260. For a description of some of the EC's structural assistance programs, see generally EUROPEAN COMMISSION, EC FINANCIAL ASSISTANCE TO THE CENTRAL AND EASTERN EUROPEAN COUNTRIES: BACKGROUND PAPER FOR SPECIAL SESSION II ON THE ROLE OF OFFICIAL ASSISTANCE IN CREATING THE CONDITIONS FOR SUSTAINABLE DEVELOPMENT (2000), available at http://www.unece.org/ead/misc/ffd2000/Financial.pdf.
261. See generally Gregory M. Duhl, Property and Custom: Allocating Space in Public Places, 79 TEMP. L. REV. 199, 231-36 (2006) (describing rational choice theory).
262. George W. Downs & Michael A. Jones, Reputation, Compliance, and International Law, 31 J. LEGAL STUD. S95, S98 (2002).
263. Id.
264. GATT, supra note 31, art. XIX.
265. Id. art. XXVIII.
266. Id. art. XXVIII(3)(a); Jide Nzelibe, The Credibility Imperative: The Political Dynamics of Retaliation in the World Trade Organization's Dispute Resolution Mechanism, 6 THEORETICAL INQUIRIES L. 215, 221 (2005).
267. Downs & Jones, supra note 202.
268. Norms and political expectations represent weaker compliance mechanisms than law.
269. See Downs & Jones, supra note 202 ("[R]eputational concerns are an important force for compliance in connection with certain agreements.").
270. ABRAM CHAYES & ANTONIA HANDLER CHAYES, THE NEW SOVEREIGNTY: COMPLIANCE WITH INTERNATIONAL REGULATORY AGREEMENTS 273 (1995).
271. See Downs & Jones, supra note 202, at S95-96 ("[A] major . . . reason why states keep commitments . . . is because they fear that any evidence of unreliability will . . . lead other states to reduce their willingness to enter into future agreements.").
272. At least historically, countries develop deep trade and investment ties with one another's neighbors before venturing into far-flung destinations.
273. See Downs & Jones, supra note 202, at S104 (noting that "[t]he capacity limitations of states to deal with agreements . . . vary a great deal," which may affect the "reputational implications" of a defection).
274. Id. at S97.
275. Charles K. Whitehead, What's Your Sign? - International Norms, Signals, and Compliance, 27 MICH. J. INT'L L. 695, 700 (2006) (describing the dynamics incentivizing regulators to cooperate and adhere to network norms).
276. See id. at 707-08 ("[N]orms regulate behavior by taxing and subsidizing actions associated with defection and compliance.").
277. Obviously, the relative size of a regional organization is also a crucial independent variable informing the implications of any particular state's defection. Where RIAs have few members, disparities between large and small states become critical, because small states will be unable to forge coalitions to coordinate policies around larger members. However, when RIAs consist of many members, small states may find opportunities to effectively contract around a larger state in the formulation of policy. Furthermore, where the cooperation of all states is necessary in order to properly effectuate a common goal, a small state's participation may become more important, and its power enhanced. Under such circumstances, though it may obtain a bad reputation, larger states may still engage the smaller country in a subsequent iteration in order to effectuate group objectives. In any case, even here, the power or greatness of a state is key: the larger the state, the more the reputational consequences will be offset by the practicalities of its participation.
278. See supra note 31 and accompanying text.
279. Barbara Koremenos et al., The Rational Design of International Institutions, in THE RATIONAL DESIGN OF INTERNATIONAL INSTITUTIONS 1, 21 (Koremenos et al. eds., 2004).
280. Uruguay Opts for Preferential Trade Agreement With U.S., MERCOPRESS, Sept. 28, 2006, http://www.bilaterals.org/article.php3? id_article=6094.
281. Id.
282. See SCHIFF & WINTERS, supra note 9, at 20 ("The trade component of an RIA can provide specie to help overcome opposition to . . . policy reforms . . . . [I]f the reforms and [trade] policies are desirable in their own right, combining them might be politically efficient.").