5 July 1997
The Philidelphia Inquirer
By Sudarsan Raghavan

State and municipal economic sanctions coming under fire

In 1991, Byron Rushing, a Democratic state senator in Massachusetts, wanted to help return Haitian pro-democracy leader Jean-Bertrand Aristide to power. So he got the legislature to pass a resolution urging Congress to act, and Congress ignored it.

Last year, Rushing's cause was human-rights abuses in Burma. But that time, he took a different tack.

He decided to give Massachusetts its own foreign policy.

He pushed through the legislature a law that bans state agencies from signing or renewing contracts with American and foreign firms doing business with Burma.

In the process, he created a looming battle with opponents he is not ordinarily used to fighting in the Massachusetts legislature: Japan, the European Union, the Burmese regime, the World Trade Organization, multinational firms, and, not least of all, the U.S. government.

At the heart of the matter is the propriety and legality of states and local governments using economic sanctions to punish countries accused of human-rights violations.

Some corporate heavyweights and political analysts warn that such state and local initiatives thwart Washington's ability to enforce effective foreign policy, and that they damage U.S. economic, political and military relationships with its allies as well as business ties in lucrative emerging markets.

``The fact of proliferation of local and state sanctions is that it really undermines the unity of U.S. foreign policy,'' said Anthony Albrecht, a senior adviser at the U.S.-ASEAN Council, a nonprofit organization funded by American companies with business ties to countries belonging to the Association of Southeast Asian Nations. ``It makes the U.S. less credible and effective in economic negotiations.''

Supporters of the local and state sanctions argue that there is a larger issue: the constitutional sovereignty of states.

``It boils down to a battle between corporate interests and the interests of ordinary taxpayers,'' said Simon Billenness, a senior analyst at Franklin Research & Development Corp. in Boston, which describes itself as a socially responsible investment firm.

The pro-sanctions movement began in the early 1980s, when grassroots activists launched a call for U.S. firms to divest from apartheid-era South Africa. In recent months, the movement has escalated -- and with real impact.

Analysts say the increasingly connected nature of the world economy gives state and local sanctions more bite overseas than in the past. The end of the Cold War has played a role, too.

``It is the absence of a national paranoiac preconception that occurred with a big, bad enemy which has emboldened people,'' said Robert Stumberg, a Georgetown University law professor specializing in state sovereignty issues.

``What is also different now is the global economy,'' he said. ``Why weren't state and local involvement in foreign policy questioned 15 years ago? The world economy was much less integrated.''

Foreign-directed sanctions are in effect or are proposed in more than 15 states, cities and counties, including San Francisco; Ann Arbor, Mich.; and the State of North Carolina:

• In May, New York City banned official purchases from firms with ties to Burma. The City Council is considering a similar ban directed at 15 countries, including China, that some council members say restrict the religious freedoms of Christians.
• Oakland, Calif., is considering a ban against firms with ties to Nigeria.
• Massachusetts is considering sanctions against Indonesia for human-rights abuses in East Timor.
• New Jersey and Chicago reportedly are looking into similar action against Switzerland for its role in laundering Nazi gold.

In what some observers see as a sign of events to come, the European Union and Japan have complained to Washington that Massachusetts' ``Burma law'' violates international trade agreements.

In mid-June, the EU formally notified the Office of the U.S. Trade Representative that it will ask the World Trade Organization for a formal consultation considering the Massachusetts law.

Analysts say the international complaints appeared to have been triggered not so much by concern about Burma as about Indonesia and China, where European and Japanese companies have significant investments.

Already, the Massachusetts law has exacted a toll. A number of firms, such as Eastman Kodak Co., Hewlett-Packard Co. and Apple Computer Inc., have pulled out of Burma in response. The state's blacklist includes a number of European and Japanese companies, among which are Nissan Motor Co. Ltd., Siemens Corp. and Sony Corp.

The spread of local and state sanctions worries lobbyists who are already trying to deal with federal trade sanctions against their firms. Many critics see such actions reeling out of control, and question the constitutionality of what they see as states undermining the federal government's right to construct a cohesive foreign policy.

``What if California, whose companies have investments in Indonesia and Burma, retaliates against Massachusetts companies?'' asked Marino Marcich, director of international investment for the National Association of Manufacturers. ``If it is a moral message, it's an ineffective one, and a highly expensive one in terms of jobs and exports. It makes us feel good. But the question is, does it do any good?''

Supporters of state and local bans contend that their governments have a constitutional right to spend money the way they please and a moral obligation to do so because most corporations are insensitive to human-rights issues and effectively lobby Washington into taking their side.

Despite small victories for the antisanctions side in some areas, the battle appears far from over.

Observers such as Georgetown's Stumberg think the Europeans are trying to use the issue to challenge what they see as a byzantine, fragmented American market with a patchwork of laws and codes at every level, from federal government down to municipalities.

Ella Krucoff, a spokeswoman for the EU, said the organization did ``not expect the U.S. to change its system,'' but the point of the dispute was that ``an agreement that governs international trade was being violated.''

A spokeswoman for the U.S. Trade Representative's Office declined to comment on whether the Massachusetts law aimed at Burma would be defended by the United States in any potential World Trade Organization hearing.

The federal government could sue Massachusetts to comply with the treaty, an event most analysts say is unlikely because of the potential for political embarrassment to the Clinton administration.

Rushing and other Massachusetts politicians, meanwhile, say they don't plan to give up without a fight.

If the EU ``carries through with this, it will be far more difficult for states to buy into future negotiations on trade and investment treaties,'' Rushing warned. ``A lot of states will take a negative look at this if you have your own State Department taking you to court.''

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