STATEMENT OF INTEREST

Associated Industries of Massachusetts ("AIM") is a Massachusetts corporation with its principal place of business at 222 Berkeley Street, Boston, Massachusetts. AIM is a non-profit, business organization with approximately 5000 members, all of which do business in the Commonwealth of Massachusetts. AIM regularly participates as party or amicus in cases raising issues of general concern for the business community. See, e.g., Houghton-Mifflin Co. v. Commissioner of Revenue, 423 Mass. 42 (1996); AIM v. Secretary, 413 Mass. 1 (1992). The Retailers Association of Massachusetts ("RAM") is a Massachusetts corporation with its principal place of business at 18 Tremont Street, Boston, Massachusetts. RAM is a non-profit Massachusetts business association with approximately 1500 members, comprised of retail companies of all types and sizes which do business in the Commonwealth of Massachusetts. While AIM and RAM, like the Commonwealth of Massachusetts, are appalled by the human rights violations committed in the Union of Myanmar, they do not believe that each of the fifty states and the thousands of American cities and towns may, by boycotting companies that do business in countries they currently disfavor, engage in foreign policy initiatives to attempt to effect change in those disfavored countries.

Amici are particularly concerned because of the importance of exports to the health of the Massachusetts economy and the prosperity of Massachusetts businesses. While Burma may not be a terribly significant trading partner for many Massachusetts companies, state and local selective purchasing laws are not limited to Burma and the argument for their validity is not limited to any particular nation or form of government. While today it is the governing regime in Burma that has peaked the Commonwealth’s anger, tomorrow it could be Canada, our largest trading partner, in a dispute over international fishing rights.

STATEMENT OF ISSUES FOR REVIEW

Amici adopt the Statement of Issues for Review set forth in the Brief of Appellee the National Foreign Trade Council ("NFTC").

STATEMENT OF FACTS

Amici adopt the Statement of the Facts case set forth in NFTC’s Brief.

ARGUMENT

NFTC demonstrates in its Brief that the District Court properly ruled that the Massachusetts Burma Law M.G.L.c. 7, §§ 22G-22M is unconstitutional because it impermissibly intrudes on the federal government’s exclusive foreign affairs powers. NFTC also demonstrates that the Burma Law violates the Foreign Commerce Clause of the United States Constitution and is, in any event, preempted. Amici will not repeat those arguments here. Amici will address two issues: the lack of any legitimate local interest advanced by the Burma Law and the Commonwealth’s contention that it acts as a "market participant" when it engages in foreign policy, thereby immunizing its conduct from scrutiny. Amici contend that the economic irrationality of the Massachusetts Burma Law which increases the costs for goods and services purchased by the Commonwealth demonstrates that the Commonwealth is not acting as a market participant but as a market regulator.

I. THE PURPOSE AND EFFECT OF THE LAW IS TO ENGAGE IN FOREIGN POLICY AND TO REGULATE FOREIGN COMMERCE.

The Burma Law, Enacted To Condemn the Governing Regime in Burma and To Help to Restore Democracy to Burma, Has No Legitimate Local Purpose.

As set forth in detail in the Statement of Facts in NFTC’s Brief, the Legislative history of the Massachusetts Burma Law demonstrates beyond dispute that it is a foreign policy initiative of the Commonwealth with the "identifiable goal" to have "free democratic elections in Burma." Appendix at 106. In its Brief to this Court, the Commonwealth contends that the "Massachusetts Burma Law promotes several purposes. . . . The Burma Law discourages companies from doing business with Burma; encourages companies to lobby for change in Burma; highlights the conditions in Burma and thereby invites action by Congress and other interested bodies; and reflects the disapproval of the people of Massachusetts of the conditions in Burma." Brief for Defendants-Appellants (hereinafter "Commonwealth’s Br.") at 24-25. The only claimed local concern which the Commonwealth identifies is the expression of the purported moral outrage of the citizens of Massachusetts about conditions in Burma.

The Brief Amici Curiae of the Comptroller of the City of New York, et al., however, contends more broadly that selective purchasing laws serve another local purpose -- protecting the financial interests of local government:

Through these and other ethical contracting and investment guidelines, states and localities accommodate the shared ethical concerns of their citizens, while protecting their financial interests by limiting contractual relationships with entities whose practices make them poor economic partners.

Brief Amici Curiae of the Comptroller of the City of New York, et al. at 2. See also id. at 4 (referring to companies who do business in disfavored countries as "poor business partners, either because they are vulnerable to boycotts, lawsuits and penalties, or because discriminatory practices deprive them of the benefits of a diverse and adequately-compensated workforce"); id. at 8-9 (referring to "entities that fail to respect basic human rights norms" and the government’s "fiduciary responsibility . . . to consider whether a company’s human rights record . . . could damage its fiscal health by inviting legal liability or consumer boycotts"); and id. at 12 ("Municipalities spending local tax levy money in the same markets as [socially responsible companies] cannot possibly have a greater obligation than they do to contract with entities having deplorable environmental or human rights records.").

The Comptroller’s attempt to create a real local interest underlying selective purchasing laws, other than the expression of moral outrage, is unavailing and should be rejected by this Court. Contrary to the Comptroller’s rhetoric, and consistent with the Legislative history of the Massachusetts Burma Law, selective purchasing laws do not seek to protect the financial integrity of local or state governments or ensure that they do business with reliable "business partners." The Burma Law does not require state officials to evaluate anything about a prospective vendor other than whether it does business in Burma. No matter how sound the business is, how good its products and services are, or how low its bid, unless it is the only bidder or the lowest bidder by more than 10%, the prospective business partner is effectively disqualified from selling its good or services to the Commonwealth because, and only because, it does business in a currently disfavored foreign country. Before enacting the Burma Law, the Massachusetts Legislature did not even purport to conduct any investigation or study to determine whether, in reality, the mere fact of doing business in Burma affected the strength of any prospective "business partner" or the quality of its goods and services. To the contrary, as one State Senator noted, the Legislature did not even consider the effect that the Burma Law might have on the Massachusetts economy:

We have no committees within this legislature that would review such matters as our essentially prohibiting our companies in Massachusetts with doing business there. We do not know how this would directly affect jobs in Massachusetts. We do not know how this would affect our export picture, which I believe the sponsors of this legislation claimed to be concerned about.

Appendix at 10 (remarks of Senator Hicks). Having given no thought to the effect the Burma Law might have on the state’s economy and Massachusetts companies, the Commonwealth cannot seriously contend that it considered whether potential vendors who also did business in Burma were commercially unfit, or even less fit, to sell goods and services to the Commonwealth.

While state laws furthering legitimate local interests which have "merely foreign resonances" may be upheld, Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 194 (1983), the Burma Law advances no such interest and its effect is more than a mere "resonance." As noted above, the purpose of the Burma law is to conduct foreign policy to effect change in Burma, as the Commonwealth admits. As Governor Weld explained when he signed the Law, "[o]ne law passed by one state will not end the suffering and oppression of the people of Burma, but it is my hope that other states and the Congress will follow our example, and make a stand for the cause of freedom and democracy around the world." Appendix at 117. Indeed, Representative Rushing, who spear-headed passage of the Burma Law, was quoted as saying, when he was informed that Apple Computer was discontinuing business in Burma: "This is exactly what we want this law to do

. . . . We hope the rest of the companies also get out." Frank Phillips, Apple Cites Mass. Law in Burma Decision, Boston Globe, Oct. 4, 1996, at B6, cited in David Schmahmann & James Finch, The Unconstitutionality of State and Local Enactments in the United States Restricting Business Ties with Burma (Myanmar), 30 Vanderbilt J. Transnational L. 175, 196 n.100 (1997).

While the Commonwealth contends otherwise, "it is beyond the province of the State courts, much less municipal agencies to sit in review of the laws of foreign governments." New York Times Co. v. City of New York Comm’n on Human Rights, 41 N.Y.2d 345, 352, 361 N.E.2d 963, 968, 393 N.Y.S.2d 312 (1977). Like the improper scrutiny of foreign laws and condemnation of foreign regimes struck down in Zschernig v. Miller, 389 U.S. 429 (1968), the Massachusetts Legislature and executive officials engaged in an impermissible examination of the "democracy quotient," id. at 435, of Burma when they enacted the Burma sanctions. Their conduct is simply not distinguishable from the judicial conduct held in Zschernig to be an unconstitutional intrusion into the federal government’s exclusive role in the conduct of foreign affairs.

Casting that conduct as an expression of the alleged moral outrage of the citizens of Massachusetts about conditions in Burma does not transform otherwise impermissible conduct into a legitimate local interest. If, as NTFC demonstrates, states and local governments have no role to play in the conduct of foreign affairs, statutes, ordinances and regulations, which have as their primary or sole purpose "making a statement" about foreign affairs and foreign governments, serve no legitimate local purpose, and have "great potential for disruption or embarrassment" of United States foreign policy. Id. at 434-35. These selective purchasing laws, including the Burma Law, cannot stand.

II. THE COMMONWEALTH’S FORAY INTO FOREIGN AFFAIRS IS NOT IMMUNIZED FROM SCRUTINY BY THE MARKET PARTICIPANT DOCTRINE.

The Commonwealth contends that "the Burma Law is not subject to review under the foreign affairs or foreign commerce powers because state procurement is market participation, not regulation." Commonwealth Br. at 46. The Commonwealth contends that "[i]n its procurement of goods and services, Massachusetts has created a market sua sponte, not regulated an existing private market." Id. at 51.

Even assuming that the market participant doctrine applies to foreign commerce, which, as NFTC demonstrates in its Brief, it does not, the Commonwealth is not acting as a market participant when it disqualifies companies from receiving state contracts because those companies do business in Burma. As the Supreme Court noted in Camps Newfoundland/Owatonna v. Harrision, 520 U.S. 564, 117 S.Ct. 1590, 1606 (1997), the three early cases in which the doctrine was used to uphold state statutes that discriminated against out-of-state entities, "stand for the proposition that, for purposes of analysis under the dormant Commerce Clause, a State acting in its proprietary capacity as a purchaser or seller may ‘favor its own citizens over others.’" The Burma Law, of course, does not favor Massachusetts citizens or companies over others, and is not protected from invalidity by the early cases discussing the market participant doctrine.

The Commonwealth contends that the state may attach any restrictions it cares to impose when it purchases goods and services. Commonwealth Br. at 52, 56. This argument has, however, been rejected by the Supreme Court in South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82 (1984). In that case, the Supreme Court rejected the state’s argument that it acted as a market participant when it required all buyers of timber sold from particular state-owned parcels to process the timber in the state. The Court held that "[a]lthough the Court in Reeves[,Inc. v. Stake, 447 U.S. 429 (1980)] did strongly endorse the right of a State to deal with whomever it chooses when it participates in the market, it did not -- and did not purport to -- sanction the imposition of any terms that the State might desire." Id. at 96. In striking the condition that Alaska imposed on the sale of its timber, the Court held that Alaska was not acting as a market participant. The Court reasoned:

In the commercial context, the seller usually has no say over, and no interest in, how the product is to be used after sale; in this case, however, payment for the timber does not end the obligations of the purchaser, for, despite the fact that the purchaser has taken delivery of the timber and has paid for it, he cannot do with it as he pleases. Instead, he is obligated to deal with a stranger to the contract after completion of the sale.

Id. The Court continued:

The limit of the market-participant doctrine must be that it allows a State to impose burdens on commerce within the market in which it is a participant, but allows it to go no further. The State may not impose conditions, whether by statute, regulation, or contract, that have a substantial regulatory effect outside of that particular market. Unless the "market" is relatively narrowly defined, the doctrine has the potential of swallowing the rule that States may not impose substantial burdens on interstate commerce even if they act with the permissible state purpose of fostering local industry.

Id. at 97-98 (emphasis added). The Burma Law, as argued above and as NFTC demonstrates, does not have a permissible state purpose. While it may be of concern to members of the Legislature and citizens of the Commonwealth that democratic elections be held in Burma, that is not a concern upon which the state may act pursuant to its powers to protect the public health, safety and welfare of its citizens. Moreover, the Burma Law places restrictions on the private action of companies in the conduct of their businesses in connection with other contracts to sell goods and services in which the state plays no role whatsoever. "The power to dictate to another those with whom he may deal is viewed with suspicion and closely limited in the context of purely private relations. When exercised by the government, such a power is the essence of regulation." White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204, 219 (1983) (Blackmun, J., dissenting) (emphasis in original).

The Commonwealth turns the holding and reasoning of White on its head when it argues that:

given that White accepted an upstream restriction on whom private contractors can hire . . . , a selective purchasing law could not possibly be invalid simply because it might affect secondary upstream markets. . . . Like the restriction in White, the Burma Law imposes a narrow condition precedent on companies who are competing for state contracts and thus "cover[s] a discrete, identifiable class of economic activity in which the State is a major participant."

Commonwealth Br. at 53-54. The restriction upheld in White, that contractors working on construction projects funded by the city of Boston hire at least 50% Boston residents, is not similar or parallel to the restriction imposed by the Burma Law. The restriction in White did not go beyond the actual transaction between the parties. The contractors in White were not required to hire at least 50% Boston residents on all their other construction projects undertaken within the city, the nation or the world, the corollary to the restriction imposed by the Burma Law. Moreover, the restriction in White promoted a legitimate local interest of the city in seeking employment for its residents -- what the Court characterized as "parochial favoritism." White, 460 U.S. at 213. No such legitimate local interest is advanced by the Burma Law. While the White Court recognized that "there are some limits on a state or local government’s ability to impose restrictions that reach beyond the immediate parties with which the government transacts business," the Court did not need to define those limits because "[e]veryone affected by the order is, in a substantial if informal sense, ‘working for the city.’" Id. at 211 n.7. The Burma Law, in contrast, affects many parties who are not "working for" or with the Commonwealth. It disqualifies businesses from "working for" the Commonwealth and requires the businesses with which it may contract to stop doing business in another market -- Burma -- that is not a market in which the Commonwealth is a participant.

The economic result of the Burma Law -- to increase the costs of goods and services for the citizens of the Commonwealth, with no concomitant benefit to the Commonwealth -- demonstrates that it is not an exercise of a market participant’s legitimate discretion. When a contract is awarded through competitive bidding, a company doing business in Burma can not be the successful bidder unless there is no other bid or its bid is 10% lower than the other bids submitted. M. G. L. c. 7, §§ 22H; 22G. The parties have stipulated that "[u]nder current Commonwealth procurement law and policy, when a bid or offer is submitted by a company on the restricted purchase list, agencies subject to the Massachusetts Burma Law are required to automatically add, and have added, ten percent to the offer, and that offer is considered to have been at the higher price for the sole purpose of comparing the offer with other bids." Appendix at 83-84, ¶ 29. Accordingly, the Commonwealth will reject a lower bid by any company on the restricted purchase list unless it is the only bid or, even when the 10% is added, it is still the lowest bid -- an improbable event. Appendix at 31, ¶¶ 7-8. The net result of the Burma Law is to increase the costs of some goods and services the Commonwealth purchases, an increase the Commonwealth can be expected to pass on to its taxpayers in the form of tax increases.

"When the policy the law promotes is not efficient use of state funds," Gould, Inc. v. Wisconsin Department of Industry, Labor & Human Relations, 750 F.2d 608, 614 (7th Cir. 1984), aff’d sub. nom., Wisconsin Department of Industry, Labor & Human Relations v. Gould Inc., 475 U.S. 282 (1986), the policy is not one of a market participant. "[B]y flatly prohibiting state purchases from repeat labor law violators [or from companies who transact business in Burma] Wisconsin ‘simply is not functioning as a private purchaser of services, . . . for all practical purposes, Wisconsin’s debarment scheme is tantamount to regulation." Wisconsin Department of Industry, Labor & Human Relations v. Gould Inc., 475 U.S. 282, 289 (1986). This Court should reach the same conclusion here based on the same conduct -- disqualification from participating in the markets for the goods and services that the Commonwealth procures.

While the line between regulation and legitimate proprietary action may sometimes be difficult to discern, the Supreme Court has held that "policy setting" is a hallmark of regulation:

When the State acts as regulator, it performs a role that is characteristically a governmental rather than a private role, boycotts notwithstanding. Moreover, as a regulator of private conduct, the State is more powerful than private parties. These distinctions are far less significant when the State acts as a market participant with no interest in setting policy.

Building & Construction Trades Council v. Associated Builders & Contractors of Massachusetts/Rhode Island, Inc., 507 U.S. 518, 229 (1993) (emphasis added). There can be no doubt that the Burma Law is an exercise of "policy setting." It implements the Commonwealth’s claimed moral and political policy in favor of human rights by regulating the conduct of its prospective business partners, "conduct unrelated to the [prospective business partner’s] performance of contractual obligations to the State." Id. at 228-229. The Burma Law regulates a number of markets and the conduct of those with which it does not contract. It is not the act of a market participant.

The proliferation of selective purchasing laws by state and local governments heralded by the amici supporting the Commonwealth’s position hurts American business. In Massachusetts, exports exceeded $17 billion dollars in 1997. Selective purchasing laws seek to foreclose markets in which businesses would otherwise be able to compete and, hopefully, prosper. While today’s focus is Burma, if these local foreign policy initiatives are upheld, the Massachusetts Legislature could target Canada tomorrow if adequately outraged. Such a law would curtail exports to the largest trading partner of Massachusetts companies.

In addition, selective purchasing laws have added, and will continue to add, layers of complexity to conducting business around the globe because companies will have to consider not only federal regulations and controls but myriad, and differing, state and local laws as well. As a matter of economic policy, as well as Constitutional law, these state and local selective purchasing laws have no legitimate place.

CONCLUSION

For the foregoing reasons, and those set forth in the Brief of Appellee National Foreign Trade Council, this Court should affirm the judgment of the District Court.

Respectfully submitted,

ASSOCIATED INDUSTRIES OF

MASSACHUSETTS and

RETAILERS ASSOCIATION OF MASSACHUSETTS

By their attorneys,

Loretta M. Smith BBO# 469460

Cynthia L. Amara BBO# 542338

New England Legal Foundation

150 Lincoln Street

Boston, MA 02111

(617) 695-3660

Dated: March 8, 1999