CONSTITUTIONALIZING ECONOMIC GLOBALIZATION

Vol. 19 No. 1 (January, 2009) pp.88-91

CONSTITUTIONALIZING ECONOMIC GLOBALIZATION: INVESTMENT RULES AND DEMOCRACY’S PROMISE, by David Schneiderman. Cambridge: Cambridge University Press, 2008. 340pp. Hardback. $120.00/£60.00. ISBN: 9780521871471. Paperback. $45.00/£23.99. ISBN: 9780521692038. eBook format. $36.00. ISBN: 9780511389276.

Reviewed by Donald Feaver, School of Accounting and Law, RMIT University, Melbourne. Email: donald.feaver [at] rmit.edu.au.

A well-designed regulatory scheme should, in theory and in practice, achieve its objective without adversely affecting on other regulatory schemes (Coglianese 2002). The new work by David Schneiderman, CONSTITUTIONALIZING ECONOMIC GLOBALIZATION: INVESTMENT RULES AND DEMOCRACY’S PROMISE, is an interesting look at how the emergence of universal rules regulating foreign investment is having a disruptive effect on government policies well beyond their immediate sphere of application. Although this might seem to be an example of regulatory failure, the investment rules regime has every appearance of being a success. There is strong evidence to indicate that investment rules do facilitate foreign investment flows by extending rights to foreign investors in the form of market access guarantees and investment safeguards (Neumayer and Spess 2005). However, as Schneiderman argues, the international investment rules regime appears to be an example of ‘global regulation’ that, while succeeding on the surface, has the effect of undermining alternative, and perhaps better, governance models by restricting first-best economic and social policy options that could otherwise be implemented at local levels. The important contribution of Schneiderman’s book lies in his explanation of the origin, the extent to which and how this body of universalizing economic rules, (which are substantively flavoured by the interests of global corporate and financial interests) is gaining priority over the interests of national governments and the societies they govern.

In addition to the Introduction, the book has nine chapters divided into three parts. Each of the three parts examines the broad issues from a differing perspective. The Introduction and Part One describe the theoretical foundation, substantive composition and the operation and effect of the international investment regime. After discussing the relationship between the international constitutionalization of economic rights and the neo-liberal concept of globalization in the Introduction, Chapter One examines the emergence of the international architecture of networks of investment agreements as well as a description of most important substantive provisions contained in those agreements. Chapter Two is one of the most important chapters of the book. In it, Schneiderman explains the substantive source of transnational property rights. In doing so, he describes the relatively recent transformation of [*89] the takings doctrine under US constitutional law. He traces the history of this transformation from the functional early interpretations of the Fifth Amendment through the steps of the progressive expansion of the takings rule by successive courts over the decades. More interestingly, he describes how the influence of the US rule has been extended into the international sphere of application. Chapter Three, in largely focusing on the NAFTA Chapter 11 experience, examines the interpretation and effects of specific provisions of the emerging universal standard, such as unreasonable interference and deprivation of expected economic benefits in how the interpretation of international rules by tribunals is reinforcing the US influenced takings rule.

Part Two examines the application and effects of the quasi-constitutional investment rules in greater depth. The inflexible and incoherent social effects of the rules are demonstrated in how they undermine social policy and values in the areas of health and environmental policy, development and land reform and, most importantly, democracy. The three chapters that comprise Part Two all examine how the “emergent” transnational constitutional order “outside” of states is influencing constitutional and statutory arrangements “inside” of states as a result of the strong discourse of economic globalization (Bourdieu 1998). Here the transformative effects of transnational law on domestic constitutional rules and structures are evident in the limited capacity to regulate economic subjects. To illustrate, Chapter 4 examines the shift in Canadian constitutional culture that has been, according to Schneiderman, influenced by the investment rules contained in the North American Free Trade Agreement (NAFTA). In what, in effect, is an extra-territorial application of US constitutional law to international investment disputes, it is interesting to note how a range of disputes have been determined using criteria drawn from US constitutional law and the application of the distinction between compensable takings and noncompensable exercises of the police power.

In Part Three, alternative conceptualizations of globalization are analysed from a perspective of how neo-liberalism has subverted the concepts of citizenship (in Chapter Seven) and the rule of law (in Chapter Eight). The message underlying both Chapters is that alternative approaches to conceptualizing globalization provide an opportunity to construct more flexible frameworks of rules to encourage and support a more humanitarian, rather than economically driven, global social order. More specifically, alternative concepts of citizenship and law based on the primacy of human rights and values provide a means of finding more just balance between global, local, economic and social interests. This message is further reinforced in the concluding Chapter which draws together the many themes of the book in affirming the notion that one of the purposes of constitutionalism is to ‘keep open the channels of change.’

If it is accepted that the current investment rules regime is an example of incoherent international regulation, the essence of the conflict and friction is, as Schneiderman explains, twofold. The first source of friction stems from a [*90] series of recent US Supreme Court decisions that have developed a legal standard that is heavily influenced by neo-liberal ideology. In itself, this standard may be appropriate as it applies to US domestic affairs. However, the problem, as Schneiderman so aptly points out, is that the adoption and ‘export’ of the US standard as the universal standard, has a whole range of negative consequences for other nation states having different levels of economic development, cultural and social welfare policies.

The second aspect of the problem Schneiderman identifies is the manner in which this questionable standard is becoming globally institutionalized. The source of international economic regulation, such as the investment rules regime, arises from inter-governmental agreements that modify the behaviour of sovereign nation states. A characteristic of these agreements is that they often have the effect of limiting government action. Where these limitations are also closely connected to ‘fundamental values,’ such as economic freedom and the protection of private property, rules limiting government action can take on constitution-like characteristics.

The inter-related themes of the international constitutionalization of investment rights and the neo-liberal conceptualization of economic globalization provide the analytical foundation upon which Schneiderman nicely incorporates other contemporary social theories, such as structuration (Giddens 1993) and complexity theory (Castells 1996), to explain an organic and hierarchical entrenchment of private economic rights. However, it is the mechanical effects of international investment agreements that raise a range of interesting governance and legal questions. The substantive composition of most international investment agreements can be reduced to two main obligations imposed on nation states. The first obligation, designed to facilitate international investment flows, accords with the neo-liberal mantra of securing a ‘level playing field’ through foreign investment access guarantees. The method by which market access is secured is through the application of two trusty principles of international economic law – ‘national treatment and most favoured nation’ (Trebilcock and Howse 2005). The first provides that foreign investors should be treated as if they are already domiciled within the host state and should be accorded treatment no less favourable than that available to nationals within that state. The second provides that foreign investors are entitled to treatment no less favourable than that available to foreign investors of any other third country.

The effect of the two principles securing market access rights is their function as a legal Trojan horse. In the event that these standards of treatment are not met, international investment agreements contain a second, more controversial obligation known as ‘the takings rule.’ Herein lies an interesting feature of Schneiderman’s analysis. On the one hand, his discussion of the evolution and operation of the international version of the rule prohibiting ‘takings,’ or the public expropriation of private property without just compensation, is one of the several strengths of the book. Schneidermann explains how a broadening interpretation and application of the United States version of this rule is influencing the formation [*91] of an international ‘takings standard’ that reaches well beyond the regulation of investment and can affect the ability of governments to legislate across a broad spectrum of matters. On the other hand, Scheneiderman might have chosen to analyse and discuss in greater detail how the legal effects of market access guarantees opens the Pandora’s box of the expansive and therefore, restrictive, takings rule.

Although CONSTITUTIONALIZING ECONOMIC GLOBALIZATION presents an argument that cautions against a prioritization of private economic rights over and above that of collective social rights, Professor Scheiderman’s treatment of the two sides of the argument is, on the whole, presented in a balanced fashion. Proponents of the neo-liberal global economic order argue that a constitutionalization of economic rights is necessary to ensure the free flow of goods, services, intellectual property and investment across borders. Limits on government action are justified to ensure that economic expansion through open market access is guaranteed and that private property rights are safeguarded. Those critical of the neo-liberal view argue that market access guarantees and property safeguards come at a very heavy social price. Market access guarantees and private property safeguards represent commitments made by governments to forgo their right to make national economic policies where local collective interests come into conflict with international private interests. Although the book provides a very good systematic examination of the regulatory frictions and social conflicts arising from the neo-liberal investment regime, the book’s real value lies in its underlying objective of describing how alternative conceptual approaches that do not seek to preserve vested interests ‘enlarge the practical range of possibilities,’ whereby the objective of economic development is achieved without inhibiting state action.

REFERENCES:

Bourdieu, Pierre. 1998. ACTS OF RESISTANCE: AGAINST THE TYRANNY OF THE MARKET. New York: New Press.

Castells, Manuel. 1996. THE RISE OF THE NETWORK SOCIETY. Oxford, Blackwells.

Coglianese, Cary. 2002. “Bounded Evaluation: Cognition, Incoherence, and Regulatory Policy.” 54 STANFORD LAW REVIEW 1217-1238.

Giddens, Anthony. 1993. NEW RULES FOR SOCIOLOGICAL METHOD (2nd ed). Stanford, CA: Stanford University Press.

Neumayer, Eric and Laura Spess. 2005. “Do Bi-lateral Investment Treaties Increase Foreign Direct Investment in Developing Countries.” 33 WORLD DEVELOPMENT 1567-1585.

Trebilcock, Micheal and Robert Howse. 2005. THE REGULATION OF INTERNATIONAL TRADE (3rd ed). London: Routledge.

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