1 April 1998
The Wall Street Journal
Robert S. Greenberger

State and Local Sanctions
Trouble U.S. Trade Partners

BOSTON -- When state Rep. Byron Rushing almost single-handedly pushed a Myanmar sanctions bill through the Massachusetts legislature, he had no idea it would cause so much anger.

The 1996 bill effectively denies state contracts to any U.S. or foreign company doing business in Myanmar, formerly Burma, a nation ruled by a brutal military regime. European countries and Japan, some of whose companies seek work in both Myanmar and Massachusetts, immediately squawked to the State Department -- and now threaten to take their case to the World Trade Organization, which enforces international trading rules. Washington, which would have to defend the Bay State at the WTO, is upset by the bill. And a worried U.S. business group is ready to file the first lawsuit challenging the legality of state and local sanctions on international trade.

Sanctions Proliferate

More trouble lies ahead. In the post-Cold War world, where international disputes rarely warrant military action, U.S. economic sanctions are proliferating, especially at the state and local level. A decade ago, these were aimed primarily at South Africa's racist policies. Now those penalties have gone, along with apartheid. But states and cities learned they could affect foreign policy and, since 1995, at least three dozen new sanctions have been put on their books to punish various nations for assorted human-rights transgressions.

Thus, 18 other governments also sanction Myanmar. Oakland, Calif., has sanctions on Nigeria while Dade County, Fla., has some against Cuba. And business executives worry there could be a new wave of state and city laws targeting China for alleged religious persecution, affecting many American companies that operate there.

Just last week, New York City and New York state officials decided to delay for now sanctions against three Swiss banks that agreed, for the first time, to negotiate a global settlement with Holocaust victims over gold stolen by the Nazis.

Driven by a Few Activists

This patchwork of penalties, often driven by a few activists, confuses U.S. trading partners which already are upset by federal sanctions against companies doing business in Cuba and Iran. "What we feel very uncomfortable with is that we get conflicting signals about who determines U.S. foreign policy and what the content of U.S. foreign policy is," says Bernd Langeheine, trade counselor in the European Commission's Washington office.

U.S. officials also are worried. When Stuart Eizenstat, the State Department's undersecretary for economic affairs and point man on sanctions, met some weeks ago with European officials to discuss further national-level action against Myanmar, he was told there won't be any further cooperation until the Massachusetts situation is resolved, says a U.S. official. "We're doing this to get Burma on the foreign-policy screen," explains Mr. Rushing, a former civil-rights activist and a state lawmaker since 1982. And indeed he has.

The sheer improbability of Massachusetts conducting a trade war against Myanmar was evident in February in a conference room near Mr. Rushing's tiny State House office. Those present, and very uncomfortable at seeming to be in negotiations with a mere state, were a senior European Union official, a diplomat from the British embassy in Washington and Her Majesty's consul general in Boston, plus, there to monitor things, a State Department bureaucrat. The Europeans wanted Mr. Rushing to amend his bill, which they say violates international trade law. He said he would, provided the EU itself imposes new, tough sanctions on Myanmar. The Europeans said no.

Neither side would budge. So, says Mr. Rushing, with an eye on historical irony, they discussed the American Revolution in their room near the Boston Common, where Redcoats once trained and some were buried back when Massachusetts was a troublesome British colony.

A Chance Meeting

That state's action grew from a chance meeting in September 1993 between Mr. Rushing and a constituent, Simon Billenness, at a press conference announcing the end of sanctions against South Africa. Mr. Billenness, who works for Franklin Research & Development Corp., which specializes in "socially responsible investing," was shopping for new ways to penalize Myanmar. Mr. Rushing had played an active role in the campaign against apartheid but "the only thing I knew about Burma was that a Burmese guy had once been head of the United Nations," he recalls, referring to former Secretary-General U Thant.

But he knew a lot about so-called selective purchasing sanctions, under which states and localities decide who can be their suppliers. Massachusetts, for example, imposes a 10% penalty on all bidders that do business in Myanmar. Mr. Rushing had authored such rules against apartheid, which eventually were imposed under the governor's executive authority, after a Massachusetts prisoner sent him a label showing that canned fruit bought for the prison system came from South Africa. Mr. Billenness simply took a copy of that bill, deleted "South Africa" and filled in "Burma (Myanmar)"

Willing to Go Along

Not many other Massachusetts legislators knew much about Myanmar, either. Mr. Rushing estimates that only about a dozen of 160 House members and a half-dozen state senators were familiar with conditions there. But work on apartheid had established his credentials, and colleagues, who felt little political pressure either way, were willing to go along. Two years later, the bill became law.

Almost immediately, such companies as Apple Computer Inc., Eastman Kodak Co. and Hewlett-Packard Co. pulled out of Myanmar, citing the law.

This entangled Mr. Rushing in the netherworld of what he calls "diplo-garbage," such as using the State Department as a backchannel to deal with Europeans and holding meetings which are never called negotiations. At issue is an international agreement -- applying to the U.S. and many other WTO members -- which says laws like the Bay State's Myanmar sanctions are illegal if they involve procurement contracts above $500,000 for goods and services or $7 million for construction.

Mr. Rushing says he didn't know about the WTO measure when he pushed the state statute. Now he is willing to have it conform if the Europeans get tougher on Myanmar in return. In fact, the EU has taken some measures, including suspending high-level contacts and imposing an arms ban, but that isn't enough for Mr. Rushing. (Last year, President Clinton imposed a ban on new investment in Myanmar.)

But the EU, Mr. Rushing and the State Department agree on one thing: Their crypto-diplomacy will collapse if the National Foreign Trade Council, a U.S. business group with about 550 corporate members, files a threatened lawsuit this spring contending that state and local sanctions violate the U.S. Constitution. Mr. Rushing worries that any modification of sanctions after a lawsuit is filed might make it seem Massachusetts considers its law to be illegal -- and it doesn't.

Most corporations didn't dare challenge sanctions against South Africa for fear of appearing to support that regime. But now many worry that rapidly spreading state and local sanctions could limit their business opportunities. Procurement contracts in California alone, for example, are worth more to some U.S. companies than any business they could secure in many countries, but they don't want to have to choose.

That is just what Mr. Rushing wants them to do. "We learned during the South Africa campaign how influential we can be in talking about human rights," he says.

Trade Wars Some state and local government sanctions: Locale Target New York State Northern Ireland* Ann Arbor, Mich. Myanmar Berkeley, Calif. Nigeria Oakland, Calif. Nigeria Dade County, Fla. Cuba

* Targets companies investing in Northern Ireland Source: Organization of International Investment, a private association of U.S. subsidiaries of internationally owned companies.

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