Summary of the NFTC Lawsuit--free trade, unilateral and economic trade sanctions

NFTC Press Release

Summary of the NFTC Lawsuit
The Massachusetts Burma Law, 7 M.G.L.A. งง 22G-M, enacted in June 1996, effectively prohibits companies that do business in the Union of Myanmar (formerly Burma) from providing goods and services to Massachusetts state agencies. The sole purpose of the law is to attempt to alter the Union of Myanmar's domestic policies. The Massachusetts law directly intrudes on the exclusive power of the national government to regulate foreign affairs, discriminates against companies engaged in foreign commerce, and subverts the policies and objectives of the federal statute imposing sanctions on the Union of Myanmar.
There is no disagreement between the parties as to the need for reform in the Union of Myanmar. The current authoritarian regime, the State Peace and Development Council, has reportedly committed egregious human rights violations and has refused to recognize the results of the democratic election held in that country in 1990. The issue presented by this case, however, is not whether the Burmese government is bad or good, but whether the Commonwealth's effort to conduct its own foreign policy is a constitutionally permissible one. It is not.
The Massachusetts law prohibits state agencies and authorities from contracting with companies that do business in the Union of Myanmar, with only a few limited exceptions to this broad prohibition. The law defines "doing business in Burma" expansively: It includes not only having any place of business in that country and/or doing business with the government, but also being the wholly owned subsidiary of any company doing business in the Union of Myanmar. As an example, imagine that "Subsidiary" were a U.S. company that was wholly-owned by Japanese "Parent". "Subsidiary" might have absolutely no business contacts in Myanmar of any sort, and no involvement in the decision whether "Parent" should do business in that nation. But if "Parent" does any business in Myanmar, "Subsidiary" will be barred from contracting with Massachusetts agencies.
The effects of this law on companies seeking to do business with Massachusetts are serious. Any company that wishes to provide goods or services to the Commonwealth must cease any business contacts it might have with the Union of Myanmar. If pulling out of that nation is not an option, then, in general, a company effectively loses any business it does have or might have had with Massachusetts. The National Foreign Trade Council (NFTC) has, for most of this century, represented the interests of hundreds of companies in free international trade. The Massachusetts "restricted purchase list," which names the companies currently affected by this law, includes over 30 of the NFTC's members. Because the law's prohibitions affect these and numerous other businesses, the Council is bringing this lawsuit as a representative of its members.
1. The United States Constitution rests complete responsibility for the conduct of foreign relations with the federal government. The federal government's exclusive control of foreign affairs was one of the central innovations of the Constitution; the need for it had become clear under the Articles of Confederation, when each of the states followed its own foreign policy course, and all of the states were forced to live with the consequences. Laws like the Massachusetts Burma Law present precisely the problem the Framers were trying to solve: When foreign governments respond to Commonwealth's foreign policy initiative, their target is the entire United States -- indeed, the European Union, Japan and the Association of South East Asian Nations have all criticized the Massachusetts law as a violation of United States international obligations.
The constitutional problem created by the Massachusetts Burma Law is a serious one, and the proliferation of similar laws in localities throughout the country only exacerbates this problem. Currently at least 18 other jurisdictions have laws targeted at companies doing business in the Union of Myanmar. And other localities currently penalize companies for doing business in Nigeria, Cuba and Tibet. Switzerland and Indonesia are the targets of proposed legislation in a number of localities.
2. The Massachusetts Burma Law also violates the Foreign Commerce Clause of the United States Constitution, which prohibits state laws that discriminate against foreign commerce, burden foreign commerce, or impede the federal government’s ability to "speak with one voice when regulating commercial relations with foreign governments." The Massachusetts law imposes a significant penalty on companies doing business in the Union of Myanmar. In so doing, it unquestionably discriminates against foreign commerce. The Massachusetts Burma Law also interferes with the ability of the United States government to "speak with one voice" on foreign commerce questions. Indeed, as discussed above, when the Framers met to design the Constitution, they were motivated in substantial part by a desire to nationalize foreign trade dealings. The drafters of the Foreign Commerce Clause understood that that discriminatory treatment of foreign commerce by one state could create problems, such as the potential for international retaliation, that concern the entire nation.
The Massachusetts law is not saved simply because the Commonwealth cloaks its effort to change Myanmar's domestic policies in a purchasing law. The so-called "market participant exception," which the Supreme Court has applied in a handful of Interstate Commerce Clause cases, is inapplicable to the Massachusetts Burma Law for two reasons: (1) the market participant exception does not apply to Foreign Commerce Clause challenges; and (2) with the Massachusetts Burma Law, the Commonwealth is acting to regulate, not simply to participate, in a market. The Commonwealth can point to no economic motivation for this law; its exclusive goal is to affect policy in the Union of Myanmar. The Supreme Court has recognized that, even when a purchasing law is involved, a state effort to set policy is regulation, not market participation.
3. Finally, the Massachusetts Burma Law conflicts with the sanctions enacted by Congress and the President to implement a federal strategy for encouraging political change in the Union of Myanmar. In the face of this conflict, the state law must give way to the federal provisions. Congress and the President have determined that the best approach to sanctions against Myanmar is a limited withdrawal of United States resources, combined with a strong multilateral effort, which requires the federal government to work in cooperation with neighboring nations and trading partners to encourage democratic change. The Massachusetts law's unilateral, complete withdrawal approach conflicts with the federal strategy and impedes the effectiveness of federal efforts. Under the circumstances, it is preempted by the federal enactments.

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