State and Local Sanctions Fail Constitutional Test

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A number of state and local governments, including theCommonwealth of Massachusetts, have enacted selective purchasinglaws that discriminate against companies that do business in thesoutheast Asian nation of Burma. The Massachusetts law is currentlybeing challenged on constitutional grounds in federal court.

State and local sanctions conflict with three majorconstitutional principles. The first and most obvious problem isthat they violate federal supremacy in making foreign policy. TheU.S. Supreme Court has ruled consistently that our constitutionalsystem of government "requires that federal power in the fieldaffecting foreign relations be left entirely free from localinterference." By explicitly attempting to make foreign policy,state and local sanctions infringe on this exclusive federalpower.

Second, state and local selective purchasing laws areinconsistent with the Commerce Clause, which grants Congress thepower to regulate commerce with foreign nations. The clause hasbeen interpreted by the Supreme Court to forbid states andlocalities from, among other things, creating "discriminationsfavorable or adverse to commerce with particular foreign nations."States and localities that enact sanctions are not merely "marketparticipants"; they seek to influence commerce with foreignnations.

Finally, state and local sanctions against Burma collide withfederal law, in violation of the Constitution's Supremacy Clause.Article VI, Clause 2, forbids state and local laws that contradictfederal laws in matters where the federal government has authorityto act. Congress has rejected proposals to ban trade with Burma orforce divestiture of existing investments there. Yet selectivepurchasing laws seek to impose just such a policy on U.S.companies.

Introduction

State and local legislatures across the country have decided topunish the regime in Burma by discriminating against companies thatdo business there.1 At latest count, the state ofMassachusetts and 20 local units of government, including New YorkCity and San Francisco, have enacted "selective purchasing" lawsaimed at Burma.2 Those laws bar any state or localcontracts with companies that invest in or trade with the targetedcountry.

Such initiatives, when adopted, amount to a series of secondaryboycotts (a boycott not of one's primary target, but of those thatdo business with it). These initiatives are intended to exertwhatever influence legislatures and councils have--and in the caseof states and larger cities this can be considerable--to influenceforeign affairs. This local policymaking is, however,unconstitutional because it impinges on the constitutional powersof the federal government. Until recently, though, there have beenno cases challenging such initiatives and--before a law journalarticle we published last year--no critical analysis in theliterature.3

Until successfully challenged, state and local boycotts of thosewho do business in Burma are presumptively valid and, as such,wield considerable influence. Major companies have left Burma,citing the Massachusetts and local laws as their reason. Othershave evaluated their business opportunities in Burma and decidedthat it made more sense to leave, or not to enter, rather than facethe loss of state and local business. If such local attempts torestrict foreign commerce and conduct foreign policy are indeedunconstitutional, their unchallenged run should be cause for greatconcern.

Local campaigns designed to influence foreign events are ofrelatively recent origin, but their attractiveness to activists isapparent. They offer a high-profile opportunity to draw attentionto a cause, with minimal political risk, and at no evident localeconomic cost. The first such campaign was against South Africa andbegan in Berkeley, California (which was also the first city topass an anti-Burma ordinance). The vogue also swept cities andtowns into aiding the Sandinistas in Nicaragua, providing sanctuaryto Guatemalan and Salvadoran refugees, and demanding cuts in thePentagon budget. Massachusetts has a law targeting companies thatdo business with the British Army--because of problems in NorthernIreland--and is currently considering an anti-Indonesia law becauseof human rights violations in East Timor. At least 10 cities haveoffices of international affairs, in essence, municipal statedepartments.

Until recently, this local activism has gone unchallenged incourt. In April 1998, the National Foreign Trade Council filed suitin U.S. District Court in Boston challenging the constitutionalityof Massachusetts' two-year-old selective purchasing law againstBurma. That it took so long to bring state and local sanctions tocourt should not be surprising. It would have been a brave companyor business association that distinguished itself by seeking toderail a community's outrage at apartheid, and there are similarrisks to challenging laws that target Burma's regime. Localactivism exploits this reluctance by business to challenge theselocal laws because the challenge itself could easily be distortedto imply support for a particular foreign government.

The issue here, though, is not the character of the Burmeseregime. The issue, rather, is whether localities can create apatchwork of local foreign policies that befuddle our nationalapproach and disrupt the allocation of power in our constitutionalscheme. That is precisely what the local laws do. From that factflow three lines of constitutional analysis, any one of which wouldprobably suffice to strike down these laws as unconstitutional.

An Intrusion into Foreign Policy

The first and most obvious problem with state and localanti-Burma laws is that they ignore the balance between state andfederal power struck by the Framers in the Constitution. Indomestic matters, the Framers granted only narrow, enumeratedpowers to the federal government, and reserved the rest to thestates and the people. With respect to foreign affairs, however,the situation is reversed: the Constitution gives the federalgovernment broad authority, and imposes strict prohibitions on thestates.4

Accordingly, the Supreme Court has repeatedly held that foreignaffairs are exclusively a federal domain:

The Federal Government, representing as it does the collectiveinterest of the. . . states, is entrusted with full and exclusiveresponsibility for the conduct of affairs with foreignsovereignties. . . . Our system of government is such that theinterest of the cities, counties, and states, no less than thepeople of the whole nation, imperatively requires that federalpower in the field affecting foreign relations be left entirelyfree from local interference.5

One need almost go no further. At issue here are state and localinitiatives with the specific objective of destabilizing aforeign government. The Supreme Court has taken a hard line even onstate action that might incidentally have an effectabroad. When, at the height of the Cold War, Oregon took its standagainst communism by disallowing anyone who lived in a communistcountry from inheriting under an Oregon will, the court wasthunderously dismissive. This is "an intrusion by the state intothe field of foreign affairs which the Constitution entrusts to thePresident and the Congress,"6 the Court said. That kindof interference, the Court said, impaired the effective exercise ofthe nation's foreign policy and could not stand.

Even the State Department's support of the Oregon law made nodifference. "We deal here with the basic allocation of powerbetween the states and the nation," Justice Stewart wrote."Resolution of so fundamental a constitutional issue cannot varyfrom day to day with the shifting winds of the StateDepartment."7

If anything, the anti-Burma laws are more vulnerable than wasthe Oregon one. Oregon's probate law was arguably designed toprotect the property of Oregonians from confiscation but had anincidental foreign impact. By contrast, the anti-Burma laws aredesigned to have a foreign impact with no tangible localbenefit.

Massachusetts and a collection of cities are making foreignpolicy, pure and simple. According to the U.S. Constitution, theymay not.

Shredding the Commerce Clause

In addition to intruding into foreign affairs, the localanti-Burma enactments are inconsistent with the Commerce Clause ofthe Constitution (Article I, Section 8). This clause prohibitsstates and localities from passing laws that burden interstate orforeign commerce by, among other things, creating "discriminationsfavorable or adverse to commerce with particular foreignnations."8 With respect to foreign trade, the SupremeCourt has said, "the people of the United States act through asingle government with unified and adequate nationalpower."9

As to interstate commerce, some impingement ispermitted to advance local interests; but where foreigncommerce is affected, local actions are subject to very rigorousscrutiny.10 What is permissible in either case isdetermined with reference to whether the local actions have alegitimate local purpose with "merely foreignresonances."11 It is unclear how this balancing testcould even be applied to the anti-Burma laws, which are bydefinition designed to have a foreign effect. Theirpreambles and the statements of their proponents leave no doubt ofit. The anti-Burma ordinance enacted by Takoma Park, Maryland,indeed, requires that a copy of it be sent to the Burmeseambassador, the secretary general of the United Nations andopposition leader Aung San Suu Kyi.12

Meanwhile, the measures in question have only the flimsiestpretext of a local purpose. Takoma Park's enactment "recognizes theimportant role local communities can take to promote universalrespect for human rights and fundamental freedoms,"13and Boulder, Colorado, goes so far as to find "that an emergencyexists in Boulder due to the current situation inBurma."14 These purported local interests do notresemble anything that the courts have ever recognized as weighingin the balance of the "necessary accommodation between local needsand the overriding requirement of freedom for the nationalcommerce."15

Language in several of the local laws confirms that theirdrafters are well aware of the Commerce Clause. Several of theordinances refer to an exception to the bar on local discriminationagainst foreign commerce, specifically the so-called marketparticipant exception. This is described by the Berkeley ordinanceas follows:

The United States Supreme Court has upheld the power of amunicipality to make legitimate economic decisions without beingsubject to the restraints of the interstate commerce clause when itparticipates in the marketplace as a corporation or as a citizen,as opposed to exerting its regulatory powers.16

There is indeed a "market participant" doctrine that exemptssome state buying and selling decisions--as opposed to taxing andregulatory decisions--from Commerce Clause restrictions. Thisexception allows states and localities, in their capacities as"market participants," to seek to advance legitimate localinterests even if there is an incidental infringement on theconduct of interstate commerce. For example, a state government canrefuse to sell a state-produced commodity to out-of-state buyers toprevent possible local shortages.17

But there are clear limits to this exception. Where a state orlocality uses its market power to influence markets in which it isnot a participant, it is treated as a de facto regulator ratherthan a mere market participant, and its exemption from CommerceClause restrictions is lost. For example, when Alaska tried tocondition sales of its state-owned timber on processing the timberin Alaska, the Supreme Court stepped in. It rejected Alaska'sargument that the state was acting simply as a seller of timber andcould impose any requirements on a sale that any private personcould. In language directly applicable to the local anti-Burmalaws, the Court said:

Instead of merely choosing its own trading partners, the stateis attempting to govern the private, separate economicrelationships of its trading partners. . . . This restriction onprivate economic activity takes place after the completion of theparties' direct commercial relations. . . . The state may not availitself of the market participant doctrine to immunize itsdownstream regulation of the timber processing market in which itis not a participant.18

There is no way to torture this language out of meaning what itsays. The exception to the Commerce Clause, on which the localanti-Burma laws rest their legitimacy, simply does not immunizeattempts to restrict separate economic relationships in far-offBurma, in which these cities and towns are not marketparticipants.

Of course, private citizens are free to protest, to boycott, andto make decisions with the express aim of influencing not only thefederal government in its conduct of foreign policy but foreigngovernments themselves. Under our constitutional scheme, however,state and local governments simply may not do so, no matter howheartfelt their citizens' concerns may be. When states orlocalities act in a manner expressly intended to advance foreignpolicy goals, they cross a line into territory the Constitutionreserves for the federal government exclusively.

One other point bears making. As limited as the marketparticipant doctrine is when it comes to burdeninginterstate commerce, the Supreme Court has never appliedthe doctrine to a case involving foreign commerce. Severalcommentators and the language in at least two Supreme Courtdecisions suggest it never would.19

Colliding with Federal Law

The anti-Burma laws' intrusions into foreign affairs and theburdens they place on foreign commerce would render themconstitutionally suspect even in the absence of any preemptivefederal legislative action. But on the subject of economicrelations with Burma, Congress has spoken. The state and localboycotts are in conflict with federal policy and are thereforeunconstitutional.

The Supremacy Clause of the Constitution (Article VI, Clause 2)does not permit state laws at odds with federal laws. For example,in 1941 Pennsylvania, in a xenophobic outburst, decided to imposespecial registration requirements on aliens. Those requirementswere different from, and more onerous than, existing federalrequirements. The Pennsylvania law contained a number of anti-alienprovisions that had actually been considered by Congress, severelycriticized, and not included in the federal act. The law was struckdown as an obstacle to accomplishing the objectives of Congress andbecause, in the field of international relations, any concurrentstate power to regulate is restricted to the "narrowest oflimits."20

Even where the state or local law does not expressly contravenefederal policy, it may be preempted if the court finds that itimpinges on the federal government's overall regulatory scheme inareas entrusted to it by the Constitution. In a case perhaps theclosest of all conceptually to the one presented by the anti-Burmalaws, the Supreme Court struck down an attempt by Wisconsin topunish companies that repeatedly violated the federal NationalLabor Relations Act by barring such firms from receiving statecontracts. Wisconsin's heart may have been in the right place, theSupreme Court said, but a patchwork of state laws would detractfrom the integrated scheme of regulation created by Congress.

If Wisconsin's debarment law is valid, nothing prevents otherstates from taking similar action against labor law violators. Eachadditional statute incrementally diminishes the Board's controlover enforcement of the National Labor Relations Act. The state'sgoal may be laudable, but it assumes for the State of Wisconsin arole Congress reserved exclusively for the National Labor RelationsBoard.21

Incidentally, the Supreme Court in that case also rejectedWisconsin's argument that it was merely a market participantdeciding with whom to do business. Wisconsin may have found doingbusiness with companies that violated federal law distasteful, butin refusing to do business with them, the Court held, "Wisconsinsimply is not functioning as a private purchaser of services. Forall practical purposes, Wisconsin's debarment scheme is tantamountto regulation."22

Juxtaposing federal law on Burma with the local enactmentsleaves little room for a plausible argument that the state andlocal ordinances are not preempted. In debate on the federal billdealing with Burma, Sen. Mitch McConnell (R-Ky.) tried withoutsuccess to persuade his colleagues in the U.S. Senate to requireAmerican business interests to divest entirely from Burma. Theproponents of complete divestment did not prevail, and instead theamendment filed by then Sen. William S. Cohen (R-Maine) is now thelaw of the land. The Cohen amendment empowered the president toprohibit only new investments in Burma. The amendment did notauthorize the president to require divestment by companies alreadyin Burma or to ban "the entry into, performance of, or financing ofcontracts to sell or purchase goods, services, ortechnology."23 On May 20, 1997, President Clinton did infact issue an executive order to ban new investments, primarily innatural resources.

The local ordinances seek to encourage divestment and todiscourage sales and purchasing activity in Burma. They are thus anattempt to implement through local action a policy expresslyconsidered and rejected by the Senate. The local measures seek tocreate precisely the situation that proponents of the Cohenamendment, which is now the law, wanted to avoid: diminishing theU.S. presence in Burma, reducing the flexibility and leverage ofthe president to influence events in a volatile situation, hobblingAmerican businesses, and removing what may be a salutary Americaninfluence from the scene. Whether one agrees with the Senate'sanalysis and conclusions is irrelevant: Local measures thatundermine the path actually chosen by Congress must be preempted,or the whole Senate debate was simply a waste of time.

A Foreign Policy Mess

The state and local secondary boycott laws have made a mess ofour foreign policy toward Burma. Patchwork sanctions almostguarantee a lack of uniformity or even coherence in responding todynamic changes in Burma.

Local activism makes U.S. foreign policy hostage to parochialconcerns and viewpoints. When the European Union and Japancomplained to the State Department that the Massachusettsanti-Burma law violated the Government Procurement Agreement of theWorld Trade Organization, Byron Rushing, the Massachusetts staterepresentative behind the anti-Burma law, responded that he had "noidea we were party to the Government Procurement blah blah." It isalso Rushing's view, incidentally, that the MassachusettsConstitution takes precedence over the federal because it is"older." 24

Finally, there is the practical problem of companies attemptingto operate in Burma having first to contact the city clerks of avariety of college towns to find out what the foreign policyinitiative of the day happens to be. This mess cannot be what theFramers of the U.S. Constitution had in mind.

Notes

1. For a comprehensive analysis of U.S. sanctions policy againstBurma, see Leon T. Hadar, "U.S. Sanctions against Burma: A Failureon All Fronts," Cato Institute Trade Policy Analysis no. 1, March26, 1998.

2. See Organization for International Investment, "State andLocal Sanctions Watch List," at www.usaengage.org/news/status.

3. David R. Schmahmann and James S. Finch, "TheUnconstitutionality of State and Local Enactments in the UnitedStates Restricting Business Ties with Burma (Myanmar),"Vanderbilt Journal of Transnational Law 30, no. 2 (March1997): 175-207.

4. The Constitution grants Congress the authority to imposeduties, regulate foreign commerce, set rules for naturalization,and declare war (Article I, Section 8). The president is thecommander in chief of the armed forces and has the power, with theadvice and consent of the Senate, to make treaties (Article II,Section 2). States, meanwhile, are barred from entering intotreaties or alliances or levying duties on imports or exports(Article I, Section 10).

5. Hines v. Davidowitz, 312 U.S. 52, 63 (1941).

6. Zschernig v. Miller, 389 U.S. 429, 432 (1968).

7. Ibid. at 443.

8. Cooley v. Board of Wardens, 53 U.S. (12 How.) 299,317 (1851).

9. Japan Line v. County of Los Angeles, 441 U.S. 434,448 (1979) (quoting Board of Trustees v. UnitedStates, 289 U.S. 48, 59 (1933)).

10. Ibid. at 446; see also South-Central Timber Dev. v.Wunnicke, 467 U.S. 82, 100 (1984).

11. Container Corp. of America v. Franchise Tax Bd.,463 U.S. 159, 194 (1983).

12. Takoma Park, Md., Ordinance 1966-33 (Oct. 28, 1996).

13. Ibid.

14. Boulder, Colo., Ordinance no. 5855 (Dec. 3, 1996).

15. Great Atl. & Pac. Tea Co. v. Cottrell, 424 U.S.366, 371 (1976) (quoting Freeman v. Hewit, 329 U.S. 249,253 (1946)). Note that in an analogous context, the Supreme Courtrejected claims that conditions abroad inflict legally cognizabledamage at home. When environmentalists tried to stop constructionprojects abroad that allegedly threatened endangered species, theyclaimed the right to bring the matter to court on the theory that aperson who uses any part of a broadly defined ecosystem is injuredwhen any other part of that ecosystem, however distant, isadversely affected. The Supreme Court rejected the argument. "Alocal connection to an event abroad," it determined, "requires morethan an ingenious academic exercise in the conceivable." Lujanv. Defenders of Wildlife, 504 U.S. 555, 566-67 (1992).

16. Berkeley, Calif., Resolution no. 57, 881-N.S., IIIB &IVB (Feb. 28, 1995). See also Madison, Wis., Resolution no. 52,471, I.D. no. 17607 (Aug. 15, 1995); Oakland, Calif., SelectivePurchasing Law; San Francisco, Calif., Admin. Code §12J.1 (1996); Takoma Park, Md., Ordinance 1966-33 (Oct. 28,1996).

17. See Reeves, Inc. v. Stake, 447 U.S. 429 (1980).

18. South-Central Timber at 98-99.

19. See Howard N. Fenton, "The Fallacy of Federalism in ForeignAffairs: State and Local Foreign Policy Trade Restrictions,"Northwestern Journal of International Law and Business 13,no. 1 (1993): 563-64. See also South-Central Timber andReeves, Inc..

20. Hines at 68.

21. Wisconsin Department of Industry v. Gould, 475 U.S.282, 286 (1986).

22. Ibid. at 289.

23. Omnibus Consolidated Appropriations Act of 1997, P. L.104-208, § 569(f)(2)(c). 110 Stat. 3009.

24. "The Mass That Roared," The Economist, February 8,1997, pp. 32-33.

David R. Schmahmann and James S. Finch

David R. Schmahmann is a partner in the Boston law firm of Nutter, McClennen & Fish. James S. Finch is a partner in the international law firm of Russin & Vecchi and its resident partner in Rangoon, Burma.