SUNS  4319 Monday 7 November 1998

Washington, Nov 5 (IPS/Jim Lobe) -- U.S. and other transnational corporations (TNCs) have scored a major victory against state and local governments in the United States that penalise companies doing business in repressive countries abroad.

A federal court judge ruled late Wednesday that a two-year-old Massachusetts law which makes it more difficult for companies that do business in Burma to win state contracts violates the U.S.
constitution.

U.S. District Court Judge Joseph L. Tauro found that the law, which adds a 10% penalty to bids for contracts by companies with investments in Burma, "impermissibly infringes on the federal government's power to regulate foreign affairs". The ruling added: "State interests, no matter how noble, do not trump the federal government's exclusive foreign affairs power."

A spokesperson for the Massachusetts Attorney-General intimated Thursday that a bid would be made to have the ruling overturned by a higher court. "We expect to appeal although we want to analyze the decision further," said the spokesperson, Marsha Cohen.

Some observers believe the case will eventually have to be decided by the Supreme Court.

The judgement has major implications not just for human rights activists opposed to the military regime in Burma, but also for the relationship between state and other local political jurisdictions, on
the one hand, and the federal government on the other.

"The impact of this decision goes far beyond Massachusetts," said Bob Stumberg, a law professor at the Georgetown Law Center here and a recognised expert on the US federal system. "It would deny the cities and states the power to use moral standards for choosing their business partners if foreign commerce is affected," he noted.

The Massachusetts law is one of dozens of so-called "selective purchasing" laws which have been used by state and local jurisdictions for more than 20 years to pressure companies to cease doing business with repressive governments abroad. Such laws are designed to force TNCs to choose between bidding on often lucrative state and local government contracts and continuing operations in the target country.

They were used most successfully during the late 1970s and 1980s to force U.S. TNCs to withdraw from apartheid South Africa. Such laws were credited with the exodus of scores of some of the biggest U.S. corporations, like Coca-Cola, IBM, and General Motors, from South Africa between 1976 and 1986, when Congress imposed its own sanctions against Pretoria over the opposition of then-president Ronald Reagan.

Similar laws in New York, California, Pennsylvania and other states and cities targeting Swiss banks and insurance companies which had failed to account adequately to Nazi Holocaust survivors and their families after World War II helped prompt a settlement of outstanding claims
last August.

Some two dozen states and cities have enacted selective purchasing laws against companies doing business in Burma, where a military junta has repressed the democratic opposition led by Nobel Peace Laureate Aung San Suu Kyi. Other jurisdictions have targeted companies with operations in Nigeria, China and Cuba.

TNCs have naturally opposed these initiatives because they curb their freedom to do business where they like. But, until now, they have been reluctant to bring a legal challenge to such laws, in part because of the negative publicity that might accrue to any company claiming a right to do business with repressive governments.

This case, however, was brought by the National Foreign Trade Council (NFTC), an association of 580 of the largest U.S. corporations and U.S. affiliates of foreign TNCs. Early in the case, the judge denied the state's request that the NFTC identify specific companies which had been harmed by the Burma law in order to establish their standing to bring the lawsuit. Instead, Tauro, in one decision that may be part of an appeal, permitted the NFTC to assert that more than 30 of its members had been affected.

The NFTC claimed vindication here Thursday. "The ruling rests on clear constitutional grounds, and should significantly deter states and cities from imposing their own foreign-policy sanctions," said Frank Kittredge, the council's president. "We share concerns over reported human rights abuses in Burma, (but) our system of government was not designed to allow the fifty states and hundreds of municipalities to conduct their own individual foreign policies," he added.

The Burma sanctions law has also provoked major interest abroad. The European Union (EU) filed a brief to the court in support of the NFTC's position, an action which earned it a strong rebuke from state officials and Massachusetts lawmakers in the U.S. Congress.

The EU and Japan also filed formal challenges to the law with the World Trade Organisation (WTO) in Geneva, claiming that it violates a 1994 Government Procurement Agreement with Washington which forbids states from using non-economic criteria in deciding on contract bids.

The administration of President Bill Clinton, which initially tried to persuade Massachusetts lawmakers to amend the law so that the EU and Japan would drop their WTO action, has since pledged to defend it in the WTO. The International Federation of Chemical, Energy, Mine and General Workers' Unions, representing more than 20 million workers, last month called on the EU to withdraw its WTO complaint and "sever all trading links with Burma until democracy is restored there."

"We're pleased with the decision, and we're assessing the implications for the WTO case," said Maeve O'Beirne, the EU's spokesperson here.

If the big TNCs were jubilant, supporters of the Burma measure were defiant. "Boycotts based on human rights have been a cornerstone of our democracy since the Boston Tea Party," said Simon Billeness, a senior analyst at Franklin Research and Development Corp. and a top leader of the grassroots effort behind the law." We cannot allow a few corporations to remove this democratic tool so that they can profit from a murderous military junta."

"If selective purchasing had been banned ten years ago, (South African President) Nelson Mandela might still be in prison today," said State Rep. Byron Rushing, chief sponsor of the bill in the Massachusetts legislature.