I. A pervasive, though not always explicit assumption of transformational grammar has been that syntactic and phonological rules form separate, discrete units in the organization of grammar; that phonological rules are not ordered among syntactic transformations, but rather apply in a block at the end of the syntactic derivation.1 Chomsky and Halle (1968) go even further in this separation, arguing that the surface structure is not the immediate input to the phonological component, but first undergoes certain ‘readjustment rules’, such as insertion of word boundaries. I have argued elsewhere (Kaisse, 1977) that this added step is unnecessary, and that there are in fact certain inter-word phonological processes that require the full information present in the labeled bracketing of the surface structure. However, my proposal is not a radical departure from the standard theory, in that it remains an INTERFACE model, in line with that proposed in Pullum and Zwicky (to appear). The claim remains that all syntactic rules apply before all phonological rules. In the case of word-internal phonological rules this is perhaps not crucial, but for rules of external sandhi, it is very important, both empirically and theoretically. For if we give up the requirement that no phonological rule apply during a syntactic derivation, we greatly increase the power of our theory of grammar and give up the ability to predict on a universal basis, the order of application of two rules, one phonological and the other syntactic.