State Legislatures Magazine: May 1999
Editor's Note: These articles appeared in the May 1999 issue of NCSL's magazine, State Legislatures. To order copies or to subscribe, contact the marketing department at (303) 364-7700.
Public Purchasing, Public Morality
Foreign Affairs Power
Drawing the Battlelines
Foreign Affairs and Super-preemption
A state claims the right to boycott a repressive regime. Global trading companies oppose the state—with support from the European Union. The argument started in 1767.
By Robert Stumberg and William Waren
Do states have the right to boycott a repressive regime? Such boycotts sparked the American Revolution, and they shaped the contours of federalism that exist to this day. In 1767, the Boston Town Meeting pledged to boycott British goods. The Massachusetts legislature passed resolutions supporting the boycott and urged other colonial assemblies to join the "nonimportation" campaign.
By 1773, the boycotts succeeded in pushing back the duties on all commodities except tea. In December of that year, the East India Company attempted to unload three ships full of tea in Boston, under a favorable trade pact with the British Parliament. The colonists defended the boycott with the Boston Tea Party, perhaps history’s most enduring act of political theater. In addition to opposing "taxation without representation," many New England activists saw the boycotts as withdrawal of support for commerce that depended on indentured or slave labor.
Today, the Boston federal courthouse overlooks the harbor. With some irony, federal judge Joseph Tauro ruled in November 1998 that it is now unconstitutional for Massachusetts to boycott the repressive military regime in Burma and the companies that trade or invest there. The Massachusetts law imposes a 10 percent penalty on bids for contracts with the state from companies that do business in Burma. The law’s sponsor, Representative Byron Rushing of Boston, modeled it on the state’s successful participation in the anti-apartheid boycotts of South Africa 20 years ago.
PUBLIC PURCHASING, PUBLIC MORALITY
The premise of the Massachusetts boycott is that when states are spending taxpayer funds, they can—and must—base their spending on standards of public morality. Reports from the U.S. Department of State and human rights organizations document the fact that the government of Burma (which calls itself "Myanmar") systematically violates the standards of international human rights agreements with:
- Political repression. When the military government of Burma lost more than 80 percent of the seats in parliament to the National League for Democracy in 1990, it repudiated the election and began closing NLD offices and jailing the party’s legislators. The government has waged war against rural ethnic minorities, who supported the NLD commitment to create a federal system with regional self-government.
- Forced labor. Burma is building its commercial infrastructure with labor forced at the point of a gun. In the previous decade, more than 5.5 million people have been forced to work on construction of airport runways, railroads, highways and agricultural irrigation systems. Seven percent of Burma’s economy is based on this slavery.
- Rape and brutality. The most common form of forced labor is military portering. Even old people, women and teenagers are required to carry military supplies on their backs. Porters are forced to walk ahead of troops to detonate mines and act as human shields in combat against Burma’s own ethnic minorities. Soldiers often beat porters with rifle butts and have forced teenagers to execute other porters who could no longer work. Women porters are separated at night from the men and are frequently raped by the soldiers.
Burma is a long way from Boston, and time has passed since the Boston Tea Party, but Massachusetts staunchly defends its Burma law.
"For more than 200 years, citizens of Massachusetts and other states have used boycotts to support the ‘natural, essential and unalienable rights’ of people around the world," said Attorney General Thomas F. Reilly, citing Part 1, Article I of the Massachusetts Constitution of 1780.
Opponents of the Burma law feel that the best way to promote democracy and human rights is by exporting, investing and operating overseas. Boycotts and sanctions, they argue, limit growth. Foreign trade promotes growth of a middle class in developing countries, which is likely to support democratic reform in the long run.
Defenders of the Massachusetts law argue that sanctions on multinational firms are justified because such companies doing business in Burma unintentionally provide economic support for the military regime. First, firms are participating in an economy that is dependent on forced labor. Second, the government of Burma and its military officers are the "middle class" that owns or controls businesses that bring in foreign exchange. Third, the military uses most foreign exchange to purchase weapons for domestic repression.
Withdrawing from business dealings in Burma, the Levi Strauss Company said, "It is not possible to do business in Myanmar without directly supporting the military government and its pervasive violations of human rights. This is not consistent with our own guidelines." The state maintains that it is simply doing what private companies do: It is choosing its business partners on grounds of public morality.
FOREIGN AFFAIRS POWER
The National Foreign Trade Council (NFTC), an association of 580 corporations, does not dispute the facts about Burma. Nor does the European Union (EU). But with EU support, the NFTC sued Massachusetts to establish the right of corporations to seek contracts from the state of Massachusetts while doing business in Burma at the same time. The council won the first round by convincing Judge Tauro that the Massachusetts law encroaches upon the federal government’s power to "regulate foreign affairs." In defining foreign affairs, Judge Tauro relied on the European Union’s argument that the Burma law conflicts with U.S. obligations under agreements of the World Trade Organization, specifically the agreement on government procurement.
The WTO agreement, which allegedly applies to 37 states, mandates public purchasing based only on how a product performs. Last year, the European Union filed a complaint with the WTO against the Massachusetts Burma law, asking a dispute resolution panel to declare it a violation of the WTO agreement on government procurement. If the dispute goes forward (it has been suspended), the main issue is likely to be whether the Burma law fits within the WTO exception for purchasing based on standards of "public morality," which the organization has never decided. The EU complaint is controversial in Europe; the European Parliament passed a resolution opposing the WTO case against the Massachusetts law in September 1998.
DRAWING THE BATTLELINES
Judge Tauro’s ruling has attracted strong interest in the appeal. In February, a diverse array of 62 public officials and organizations filed eight different amicus (friend of the court) briefs in support of Massachusetts. These included eight attorneys general, 26 members of Congress, human rights groups, environmental organizations and the AFL-CIO. On the other side, in addition to the European Union, the NFTC is backed by the U.S. Chamber of Commerce and four other organizations supporting free trade principles. Both sides seem eager to take their cause to the Supreme Court if they do not prevail at the First Circuit Court of Appeals. In particular, the ruling that WTO obligations justify judicial intervention against state law has escalated the national debate over preemption, principles of federalism and sovereignty protection under trade agreements. The debate centers on:
- Preemption: Who decides? Judge Tauro ruled that he must adhere to a 1968 decision called Zschernig vs. Miller. The Supreme Court ruled that federal courts should strike a state law if it has more than an "incidental effect" on foreign countries or great potential for "disruption or embarrassment" of U.S. foreign policy. Massachusetts counters that in 1994, the Supreme Court defined a more conservative role for federal courts in its Barclays Bank decision. In that case, a British bank and the European Union challenged the way that California taxes global companies. The Court held that it is Congress, not the courts, that must decide whether foreign policy should preempt state law. The NFTC counters that the Court has never overruled Zschernig, so the stage is set for a watershed decision if the Supreme Court feels ready to make it.
- Principles of federalism. Both parties agree that private companies have a right to select their business partners or join boycotts. However, Judge Tauro ruled that Massachusetts does not have the same right. Massachusetts responds that the Court has recognized a "market participant" rationale for allowing states to manage their own purchasing without limits set by Congress or the courts. To limit the state’s market freedom to consider public moral considerations would amount to forced commerce. They argue that regulating state purchasing, but not private purchasing, violates the 10th Amendment. The Supreme Court’s interpretation of the 10th Amendment enables the federal government to regulate state government operations, but only when it is on an "equal footing" with regulation of the private sector. The NFTC counters that the Supreme Court has applied the "market participant" rationale only to interstate commerce, not foreign commerce.
- Protected speech. In the trial court, the NFTC lawyers argued that the federal foreign affairs power prevents state legislatures from adopting not only a boycott, but also any law that includes language that is critical of a foreign government. The Burma law defenders argue that the First Amendment protects not only speech that might offend, but also state participation in a political boycott. Private companies have free speech rights to engage in a political boycott. Therefore, they argue that the "equal footing" rule under the 10th Amendment requires that states enjoy the same freedom to speak through their spending. The NFTC counters that the Supreme Court has yet to recognize First Amendment protection for speech by state governments.
- Sovereignty protection under trade agreements. The brief filed by members of Congress argues that in 1994, state officials (including NCSL) warned Congress that private corporations would file lawsuits like the NFTC case. They warned that corporations would claim that the states are violating foreign policy as expressed in various WTO agreements. Congress responded by adopting protections for state sovereignty in the WTO implementing legislation. One section bans any private cause of action, including indirect constitutional claims, which are brought "in connection with" WTO obligations of the United States. The members of Congress argue that Judge Tauro’s decision opens a back door for private parties, backed by foreign governments, to undermine the commitment that Congress and the executive branch made to state officials. The NFTC counters that Congress did not intend to foreclose constitutional remedies.
FOREIGN AFFAIRS AND SUPER-PREEMPTION
The reason for such strong interest in the Burma law case is that foreign affairs power could become a new form of "super-preemption" that empowers federal courts to overturn state law, regardless of whether Congress has legislated with an intent to preempt. Not only is it broader than current preemption doctrine, it could be triggered by an allegation by the European Union or other WTO members that a state law violates U.S. obligations. Long before the Burma law was an issue, the EU, Japan, Canada and other countries argued that many state laws violate WTO agreements on procurement and product standards. For example:
- Human rights standards: Judge Tauro’s ruling would have overturned the anti-apartheid laws in 19 states and 62 cities, which are the models for the Burma laws in Massachusetts and 22 cities. In addition, California bans state purchase of goods made with forced labor; and 19 states follow MacBride principles for avoiding companies that practice religious discrimination in Northern Ireland. In 1998, New York City, New York state and California threatened to boycott Swiss banks over their refusal to settle claims by the families of Holocaust survivors. Shortly thereafter, the Swiss banks settled the case.
- Economic preferences: Forty-seven states have "Buy America" or "buy local" preferences; some states and many cities give preference to minority contractors or firms that pay a "living wage."
- Environmental preferences: Forty-eight states use environmental purchasing preferences for recycled materials, alternatives to wood products and alternatives to petroleum products including fuel and ink.
- Alcoholic beverage licensing and taxation: Canada won a pre-WTO trade case against more than 60 state wine and beer statutes (the Beer II case). The Canadians are threatening to bring the case again, now that there are enforcement sanctions under NAFTA and the WTO.
- Regulatory standards: In its 1998 trade report, the EU repeats its complaint that varying regulatory standards among states violate the uniformity requirements of the WTO agreement on technical barriers to trade. In a typical state, there are dozens of health, safety and environmental standards that could be challenged under this agreement.
Given the potential impact on the power of state legislatures, the scope of foreign affairs power could alter the relationship between Congress and the courts and between states and the federal government. If foreign affairs power amounts to super-preemption in the post-WTO world, the decision in the Burma law case could chill the political climate for new trade or investment agreements.
The appeals court can affirm or reverse Judge Tauro’s preemption order, or it can strike a new, more delicate balance between the competing values of federalism and the federal power over foreign affairs. In considering this balance, the court may heed the words of U.S. Secretary of State Madeleine Albright, who said: "President Clinton and I recognize the authority of state and local officials to determine their own investment and procurement policies, and their right—indeed their responsibility—to take moral considerations into account as they do so."
Robert Stumberg is a professor of law at Georgetown University Law Center. William Waren writes about federalism issues for NCSL.
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