Mar 13, 1998

UNITED STATES: COURT BATTLE SHAPES UP OVER BURMA SANCTIONS

Washington, Mar 11 (IPS/Jim Lobe) -- The battle lines have been set for a major constitutional fight over the power of US state and local governments to bar multinational companies that invest in certain foreign countries from bidding on procurement contracts.  

A coalition of more than 600 big US companies is planning to sue the Massachusetts state government as early as next month over a 1996 state law which penalises companies with investments in Burma, where a military government is accused of committing serious human rights abuses and suppressing the popular opposition.  

The suit, announced by the National Foreign Trade Council (NFTC), will be based on constitutional doctrines which assert the supremacy of federal law and policy over conflicting state or local laws. Such matters would include conducting foreign policy and regulating foreign commerce, according to the anti-sanctions forces. "The purpose of a constitutional challenge is to check the threat that local sanctions pose to the formulation of a single, coherent national policy," according to the NFTC. "We believe that efforts by state and local governments to pursue their own independent foreign policies, however well-intentioned, should be halted in deference to the system mandated by the constitution."

The administration of President Bill Clinton, which last year banned new investments in Burma by US companies, so far has tried to avoid asking a position on the constitutional issue. Formal court action by the business coalition, however, could force Clinton to take a stand.  

The administration generally has opposed state and local sanctions, which were a major weapon against the anti-apartheid government in South Africa during the 1980s, primarily because they have caused headaches with key U.S. allies.  

After the Massachusetts legislature approved the Burma sanctions law, for example, both the European Community and Japan formally complained to the World Trade Organisation (WTO) in Geneva that it violated the General Procurement Agreement, an accord agreed by Massachusetts and 38 other US states to ensure that procurement contracts are awarded solely according to economic criteria.  

After appealing for Massachusetts to change its law, the Clinton administration said it would defend the state against any formal action at the WTO. Behind the scenes, however, it has been encouraging a settlement based on Massachusetts agreeing to apply the procurement sanction only to supply contracts of less than $500,000 and construction contracts of less than $5 million.  

Consultations involving the European Union, key Massachusetts lawmakers, and the Clinton administration have gone on for months, although the EU has threatened to request a formal WTO dispute panel if the issue is not resolved soon.

State and local sanctions against companies doing business in objectionable nations have proliferated since the anti-apartheid era. They were particularly effective against South Africa when, in order to retain their often-lucrative contracts with state and local governments here, major US corporations, such as Coca-Cola and General Motors, divested their holdings in the apartheid state. 

There are about 50 state and local "selective purchasing" laws currently on the books country-wide. About half of them target Burma, while most of the rest are directed against companies doing business in Indonesia, Nigeria, or China. 

Besides Massachusetts, selective purchasing laws against Burma have been approved by San Francisco and New York City and 16 other cities and are pending in California, Vermont, Los Angeles and Seattle.  

These state and local sanctions have annoyed the US business community which last year formed a new group, called 'USA Engage,' to wage a major fight against all unilateral U.S. sanctions, state, local and federal. The 660-member business association, which includes most of the US' biggest corporations, claims that these sanctions cost its clients as much as $19 billion in lost exports. 

On the Congressional front, USA Engage is behind pending legislation that would make it much more difficult for Congress to enact unilateral sanctions. Aside from lobbying the administration, however, its campaign against state and local sanctions will be waged in the courts.  

"America needs to confront the outside world not as 50 sovereign states with thousands of independent municipalities, but as a single nation with a single foreign policy," according to the NFTC, which works closely with USA Engage. 

In an internal memo obtained by the Washington newsletter, 'Inside US Trade,' Frank Kittredge, the NFTC president, said he foresees two lawsuits lasting two years and costing as much as $800,000. "Our plan is to obtain funding commitments from 30-40 companies..." he wrote. The first suit will be filed against Massachusetts, while a second one has yet to be decided.  

The Clinton administration has advised USA Engage to delay filing the lawsuit until after the consultations between Massachusetts, the EU, and the administration are finished, according to Inside US Trade. But the business association says they are determined to forge ahead, if only because any settlement could legitimise the use of local and state sanctions. 

The administration itself is loathe to take a position that could prove politically costly regardless of the position it took. But in a speech to the California legislature last October, a senior Commerce Department official suggested that the administration may agree with business' argument over pre-emption if the constitutional issue is ever joined. "State and local sanctions," said Deputy Assistant Secretary David Marchik, "do have the practical effect of interfering with the President's ability to conduct our foreign policy."  

The Massachusetts Attorney-General's office says it will not comment on its defence until the suit is filed. But activists who have been working with the attorney-general assert that selective purchasing agreements should be seen as an exercise in free speech, and that procurement decisions are well within the purview of state of government. 

"This is a clear attack on the fabric of democracy in the United States," says Simon Billeness, a veteran campaigner at the Franklin Research and Development Corporation in Boston. 

Billenes notes that the NFTC may also have difficulty showing that it has suffered actual damages as a result of the sanctions law in order to establish its legal standing to bring the suit. That could force the companies which are underwriting the costs to come forward, he says, adding "they may be wary of doing so given the negative publicity that is likely to ensue."